Bond Traders Defy Fed and Spark Heated Debate on Wall Street

Core Viewpoint - The bond market's unusual reaction to the Federal Reserve's interest-rate cuts indicates a significant disconnect, with Treasury yields rising despite rate reductions, a phenomenon not observed since the 1990s [1][2]. Group 1: Market Reactions - The bond market is not aligning with President Trump's belief that faster rate cuts will lead to lower bond yields and subsequently lower rates on loans [3]. - Key Treasury yields have increased, with ten-year yields rising nearly 0.5 percentage points to 4.1% and 30-year yields up over 0.8 percentage points since the Fed began easing policy [6]. Group 2: Federal Reserve Actions - The Federal Reserve has reduced its benchmark rate by 1.5 percentage points since September 2024, bringing it to a range of 3.75% to 4%, with expectations for further cuts [5]. - Historically, long-term bond yields tend to follow short-term policy rate changes, but this trend has not been observed in the current easing cycle [7]. Group 3: Political Influence - There are concerns that political pressure could lead the Fed to ease policy more aggressively, potentially undermining its credibility and exacerbating inflation, which could further increase yields [4]. - The potential appointment of a political figure to the Fed by Trump raises doubts about the effectiveness of achieving lower long-term yields [4].