When the Federal Reserve cut interest rates by fifty basis points last week, the bond market took notice. While many believe that the start of an easing cycle can signal a decline in yields across the board, it’s important to remember that not all bonds respond the same way.
The short end of the yield curve, influenced by Central Banks, reacts immediately to rate cuts. However, the long end of the curve—shaped more by future economic and inflation expectations—can tell a different story. This can greatly affect how yields behave across various bond durations.
Looking at the nine prior rate cuts since 1974, yields on the 10-Year Treasury were higher one year later in all but three cases (1984, 2007, 2019). Recent history has left many expecting yields to plummet, but on a median basis, yields have tended to slightly rise. Could we see higher yields in 2025? With economic data outperforming expectations, there’s little reason to expect significant drops in yields unless conditions change.
This isn’t just a bond market story—it affects consumers too. While short-term rates impact credit cards and home equity loans, longer-term debt like mortgages and car loans follow the long end of the yield curve. For those hoping to lock in lower rates on homes or cars, strength in the 10-Year Treasury may dampen those expectations.
