Fed Rate Decisions Drive Long-Term Bond Yields

The Federal Reserve's interest rate decisions have a significant impact on long-term bond yields, according to new research. The study found that 90.5% of the 4 percentage point run-up in long-term Treasury yields between August 2020 and this month occurred within three-day windows around major Fed communications or the release of the jobs report.

These events accounted for only 24% of trading days, suggesting that short-term monetary policy outlook is a key driver of long-term rates. The research aligns with earlier findings from Harvard economist Sebastian Hillenbrand, which showed that the three-decade secular decline in long-term yields occurred almost entirely around Fed announcements.

Recently, a surge in long-term bond yields was driven by events such as Flash PMI numbers and a speech by Fed governor Michael Barr. These developments pushed the 30-year Treasury yield up from 5.3% to 5.41%, a 23-year high.