Strategists say the the Fed’s slight step toward tightening policy didn’t shock markets Wednesday, but it will likely make them volatile going forward. The Fed, in essence, is acknowledging the door is now open to future rate hikes. … The yields of shorter-duration Treasurys, like the 2-year note, rose, while longer duration yields, such as the benchmark 10-year fell. That so-called “flattening” is a go-to trade when interest rates rise. The logic is that longer yields fall since the economy may not do as well in the future with higher interest rates, and short-end yields rise to reflect expectations of the Fed raising rates. U.S. longer-dated Treasurys, like the 10-year, have been lower than many strategists had expected lately. In part, that’s because they are highly attractive to foreign buyers due to negative rates in other parts of the world and liquidity in the U.S. markets. The 10-year yield shot to 1.59% after the Fed news, but was back down at 1.5% Thursday afternoon.
Source: CNBC – Bonds
