March; Federal Reserve hike means Treasury sell-off? Actually, historically, quite the opposite

The chart below‎ demonstrates the change in US 10-year Treasury yields in the run-up to a Federal Reserve (Fed) hike, and what then happens in the weeks afterwards. This covers the 70 Fed hikes over the past 37 years.

In the run-up to a Fed hike, US yields tended to rise. This is no surprise, considering that markets will have tended to price in an increasing probability of a hike ahead of an actual Fed hike. On average, yields rose 18 basis points from three weeks before the hike to the actual hike itself. This time is no different, with US 10-year yields rising 17 basis points over the past three weeks.

But interestingly, in the weeks after a hike bonds have tended to rally, with the average fall in 10-year yields being 3 basis points. The hit rate is also high – 10-year yields fell 70 per cent of the time‎.

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