Financial FitnessGeneral Information

How Do Rising Interest Rates Affect Bond Rates?

By June 20, 2019 No Comments

Why Does the Fed Change Interest Rates?

The Federal Reserve raises and lowers interest rates to try to keep the economy growing at a steady pace.

As the economy weakens, the Federal Reserve cuts interest rates, which is referred to as rate easing.  When the economy is strong, the Federal Reserve raises rates, called the tightening cycle.

What Do Raised Interest Rates Mean?

Since the Federal Reserve began raising interest rates in December of 2015, they have raised them a total of 9 times.

During the same time period, the yield on the 10-year treasury has increased less than 0.25% going from 2.3% to 2.53%, even though the Federal Reserve has raised rates nine times.

In other words, just because the Federal Reserve is raising interest rates doesn’t necessarily mean interest rates on the 10-year Treasury or other bonds are going to go up at the same rate.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.  All performance referenced is historical and is no guarantee of future results.  All indices are unmanaged and may not be invested into directly.