After keeping its federal funds target rate at a record low of zero to 0.25 percent for the past six years, the Federal Reserve is expected to begin raising rates around mid-year. And that could be very bad news for the bond market.
"The big picture is that the era of zero interest rates is coming to the end, and the bond market is going to adjust," Richard Schlanger, a fund manager at Pioneer Investments, told
The Wall Street Journal.
To be sure, expectations of higher bonds yields have been dashed before, most recently last year. Many market participants predicted the 10-year Treasury yield would end 2014 around 3.5 percent, after closing 2013 at 3.04 percent.
Instead, the 10-year yield finished last year at 2.17 percent.
"It was a year the bond market defied every expectation from the outset," Christopher Sullivan, chief investment officer at the United Nations Federal Credit Union in New York, told The Journal.
But this year, Fed tightening and strong economic growth are expected to boost bond yields. The economy expanded at an average rate of 4.8 percent in the second and third quarters.
"If the Fed indeed hikes in, say June, or indeed anytime during the summer, yields should start rising," Joakim Tiberg, a rates strategist at UBS Group in London, told
Bloomberg.
And why have yields slid in recent days?
"Markets have obviously disregarded any sense that rate hikes may be approaching and have traded on the back of a whole lot of other things," Tiberg said. That includes economic weakness in Europe, which is sending investors to Treasurys.
© 2025 Newsmax Finance. All rights reserved.