It sounds contradictory: the Federal Reserve cuts interest rates, yet the 10-year Treasury yield rises. The central bank sets a very short-term policy rate. Longer-term Treasury yields are determined by investors, who price in expectations for inflation, economic growth, government borrowing and future Fed policy over many years. The Federal Reserve’s yield-curve framework broadly separates long-term yields into expected future short-term rates and a term premium investors demand for holding longer-duration bonds. That is why a Fed cut can happen at the same time as higher long-term yields. Suppose the Fed lowers rates because it wants to support growth.
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