The Bid
209: Why Are Bond Yields Rising As Rates Are Cut?
Feb 14, 2025
In this insightful discussion, Jeff Rosenberg, a Senior Fixed Income Portfolio Manager at BlackRock, unpacks the intriguing rise in bond yields despite interest rate cuts. He analyzes the disconnect between expected and actual market behaviors, drawing on historical parallels with the Greenspan era. The conversation also delves into the post-COVID dynamics affecting interest rates and global economic indicators. Rosenberg shares strategies for navigating a shifting bond market, emphasizing the importance of bond duration and diversified portfolio construction.
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Quick takeaways
- The rising long-term bond yields amidst Fed rate cuts signify a transformative shift in investment strategies, challenging historical assumptions.
- Persistent inflation pressures post-COVID have created unique demand-supply dynamics, significantly influencing long-term interest rates beyond just Fed policies.
Deep dives
Unprecedented Bond Market Behavior
The bond market has exhibited unusual behavior, particularly with longer-term interests decoupling from the direction set by short-term rates controlled by the Federal Reserve. In a significant occurrence, while the Fed cut interest rates, longer-term yields rose, creating a disconnect that contradicted typical market expectations. Historically, investors relied on the Fed's policies to predict bond performance, but this latest trend challenged that assumption. This atypical behavior suggests a transformation in how investors should approach and interpret bond yields amidst changing economic conditions.
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