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The FOMC will likely raise the target for the federal funds rates later today. We discussed the affect of rate increases on various asset classes a year ago when the FOMC enacted their first rate increase since 2006. The general conclusion was that equities, commodities and bond yields all rose in the subsequent months.
Those conclusions were mostly right. The one exception was bond yields. On the day of the rate increase in December 2015, 10 year yields in the US hit 2.33% (arrow). That was the high until November 2016, 11 months later. In the interim, yields fell 100 basis points over the next half year.
That was unexpected. Yields had risen from 1.9% in October and from 1.6% in January 2015. In the six prior rate hike cycles since 1983, yields had continued to rise after the FOMC decision (data from Allianz).
Treasury yields have again risen strongly ahead of today's FOMC meeting, although the 10-year yield is only 10 basis points higher than a year ago. Expectations are they will continue to rise. Might investors be wrong once again?
Money flows out of bond funds have recently been one of the most extremely negative of the past 15 years (from BAML).
Treasury yields have again risen strongly ahead of today's FOMC meeting, although the 10-year yield is only 10 basis points higher than a year ago. Expectations are they will continue to rise. Might investors be wrong once again?
Money flows out of bond funds have recently been one of the most extremely negative of the past 15 years (from BAML).
