Is the Treasury Bond Massacre Finally Over?
After unprecedented carnage in the government debt market, longer-term yields may have reached their ceiling.
Fed Chair Jerome Powell is keeping an eye on bond yields.
Photographer: Al Drago/Bloomberg
The nation’s inflation problem is far from solved, and the Federal Reserve remains committed to keeping short-term interest rates elevated. But longer-term government bonds may finally be worth a second look after some 14 months of carnage.
Although the Fed has short rates pinned in the vicinity of 4% to 5%, longer-term yields tend to start falling much sooner as monetary tightening cycles come to an end, especially as markets look ahead to the risk of a looming recession. In fact, during the past five rate-increase cycles, 10-year notes have on average peaked and begun to rally 206 days before the first Fed cut. Here’s the basis-point change in the 10-year Treasury in the 12 months before each rate reduction: