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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Atypical Bond Market Behavior
- Bond yields rose over 1% since September 2024, despite the Fed cutting rates.
- This atypical behavior surprised investors, as bond performance usually follows Fed policy.
Inflation's Impact on Long-Term Rates
- Post-COVID inflation hasn't returned to pre-COVID levels, influencing long-term rates.
- Long-term rates react to both Fed actions and inflation expectations.
Factors Affecting Long-Term Rates
- Besides inflation, rising term premiums and fiscal uncertainty affect long-term rates.
- Increased government debt and deficits contribute to this uncertainty, demanding higher premiums.