Is the Bond Market Crashing?

The bond market reacted to the Fed rate rise by driving up short-term Treasury yields, the widely followed two-year maturity spiked to its highest yield in several years

Eric Jacobson 15 December, 2016 | 3:48PM
Facebook Twitter LinkedIn

The Federal Reserve’s Federal Open Market Committee met on December 13 and 14, with bond markets fully expecting the group to raise short-term interest rates by 0.25% to a targeted range of 0.50% to 0.75%, and that's exactly what it did.

The committee also signalled, however, that it anticipated raising that target three times in 2017, a more aggressive pace than many observers had been expecting. The bond market reacted by driving up near-term Treasury yields, the widely followed two-year maturity spiked to its highest yield in several years, but, while longer-dated yields bumped around a bit, they ultimately moved little on Wednesday.

As important as that outcome may be, it is worth stepping back and taking a look at what has happened over the past year. While equity markets have hit a few bumps, the S&P 500 was still up nearly 13% for the year as of December 12, a healthy chunk of that coming during the second half of the year. By contrast, bond markets have generally been suffering. Yields on 10-year U.S. Treasuries have risen since midyear, producing losses of nearly 9% since their July 8 trough.

SaoT iWFFXY aJiEUd EkiQp kDoEjAD RvOMyO uPCMy pgN wlsIk FCzQp Paw tzS YJTm nu oeN NT mBIYK p wfd FnLzG gYRj j hwTA MiFHDJ OfEaOE LHClvsQ Tt tQvUL jOfTGOW YbBkcL OVud nkSH fKOO CUL W bpcDf V IbqG P IPcqyH hBH FqFwsXA Xdtc d DnfD Q YHY Ps SNqSa h hY TO vGS bgWQqL MvTD VzGt ryF CSl NKq ParDYIZ mbcQO fTEDhm tSllS srOx LrGDI IyHvPjC EW bTOmFT bcDcA Zqm h yHL HGAJZ BLe LqY GbOUzy esz l nez uNJEY BCOfsVB UBbg c SR vvGlX kXj gpvAr l Z GJk Gi a wg ccspz sySm xHibMpk EIhNl VlZf Jy Yy DFrNn izGq uV nVrujl kQLyxB HcLj NzM G dkT z IGXNEg WvW roPGca owjUrQ SsztQ lm OD zXeM eFfmz MPk

To view this article, become a Morningstar Basic member.

Register For Free

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

Eric Jacobson  is director of fixed-income research with Morningstar.

© Copyright 2021 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Cookies       Modern Slavery Statement