Interest rates and yield curve

Hey everyone,

If the Fed keeps saying they are raising rates. Why does the yield curve keep sliding downwards? Could someone please explain this to me?

Many thanks, am preparing for my CFA!

Yield curvehttps://economictimes.indiatimes.com/markets/stoc…

 

That chart is the 2Y10Y spread. Shows the difference between the 10Y and 2Y US Treasury yields; it's evidence of curve flattening, not parallel shifts.

As to why yields move, lots of reasons. The usual (safe, pun intended) guess is a flight to quality situation. The Fed sets a target for the Fed Funds Rate (not a maturity of US debt), and tries to use open market operations to push Fed Funds to their target.

 

The Fed sets the fed funds rate, which is a short-term rate (overnight lending rate that member banks charge each other for borrowing fed reserves). It thus drives other short-term rates but not the long-end of the yield curve. Of course, initially, when the Fed makes a rate announcement, you will see the entire yield curve move in response, but that is a short-term "gut" reaction rather than due to fundamentals. The 10-year yield will decline due to flight to safety, pessimism over the long-term state of the U.S. economy, etc.

 

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