In an article titled “U.S. Government Bonds Slump as Yellen Remarks Spark Interest Rate Anxiety” on the Wall Street Journal today (Link), the author details the Treasury market’s reaction to Fed Chairman Janet Yellen saying interest rates could be raised “a few times a year” for the next several years. In short, the bond market had a mini freak out, sending bond prices down and yields up.
Why the bond market reacted so strongly is a question for the ages. The Fed has been signaling for years (literally) that interest rates would be rising. Some inflation indicators have finally begun to increase. Unemployment is below 5% and wages are on their way up. All this points to imminent rate hikes.
It’s not as if Yellen signaled that upcoming rate hikes would be dramatic or rapid, or in any way different than what Wall Street should have already been expecting. Really, Yellen’s remarks should have been more yawn-inducing than trade-inducing.
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