Why are long-term Treasury yields rising as the Fed cuts rates?
Core argument: The 10-year Treasury yield rose from 3.63% on September 16 to 4.42%, moving opposite the federal funds rate after the FOMC cut its target range by 50 basis points in mid-September and 25 basis points in early November to 4.50–4.75%.
After holding the federal funds rate target range at 5.25 to 5.50 percent for over a year, the Federal Open Market Committee (FOMC) cut the range by 50 basis points to 4.75 to 5.00 percent in mid-September and by another 25 basis points to 4.50 to 4.75 percent in early November. As expected, yields on short-term Treasury bills fell in kind, with the 3-month yield dropping from 4.87 percent on September 16 to 4.54 percent today. But surprisingly, longer-term yields moved in the opposite direction of the federal funds rate, with the 10-year Treasury yield rising from 3.63 percent on September 16 to 4.42 percent today. The recent rise in yields has likely been exacerbated by the election and the fiscally irresponsible proposals by both presidential campaigns. As both candidates continued to add deficit-increasing proposals to their campaign agendas, yields rose. And the 10-year yield increased significantly by 21 basis points as election results came in, from the time polls started closing to when the election was called. (The 10-year yield has since fallen by 5 basis points, mainly due to the Fed announcing a 25-basis point cut).