Bond Traders Defy Fed and Spark Heated Debate on Wall Street
(Bloomberg) — The bond market’s reaction to the Federal Reserve’s interest-rate cuts has been highly unusual. By some measures, a disconnect like this, with Treasury yields climbing as the central bank lowers rates, hasn’t been seen since the 1990s.
What the divergence indicates is a matter of heated debate. Opinions are all over the place, from the bullish (a sign of confidence that recession will be averted) to the more neutral (a return to pre-2008 market norms) to the favorite culprit of the so-called bond vigilantes (investors are losing confidence the US will ever rein in the constantly swelling national debt).
Most Read from Bloomberg
But one thing is clear: the bond market isn’t buying President Donald Trump’s idea that faster rate cuts will send bond yields sliding down and, in turn, slash the rates on mortgages, credit cards and other types of loans.
With Trump soon able to replace Chair Jerome Powell with his own nominee, on top of everything else is the risk of the Fed squandering its credibility by caving to political pressure to ease policy more aggressively — which could backfire by fanning already elevated inflation and pushing yields higher.
“Trump 2.0 is all about getting long-term yields down,” Steven Barrow, head of G10 strategy at Standard Bank in London. “Putting a political figure at the Fed will not get bond yields down.”
The Fed started pulling its benchmark rate down from a more than two-decade high in September 2024 and has since cut it by 1.5 percentage points to a range of 3.75% to 4%. Traders see another quarter point cut after the next meeting on Wednesday as virtually assured and are pricing in two more such moves next year, which would bring its rate to around 3%.
Yet, key Treasury yields — which serve as the main baseline for the borrowing costs paid by American consumers and corporations — haven’t come down at all. Ten-year yields have risen nearly half a percentage point to 4.1% since the Fed started easing policy and 30-year yields are up over 0.8 percentage point.
Normally, when the Fed moves short-term policy rates up and down, long-term bond yields tend to follow. Even in the only two easing cycles outside of recessions over the past four decades – in 1995 and 1998, when the Fed cut only 75 basis points each time — the 10-year yield dropped outright or rose less than they have during the current episode.
Jay Barry, head of global rates strategy at JPMorgan Chase & Co., sees two factors behind it. The scale of the Fed’s hikes during the post-pandemic inflation surge was so steep that markets started pricing-in the Fed’s about-face well before it started, with 10-year yields peaking in late 2023. That blunted the impact once it began.
Moreover, by slashing interest rates even when inflation remains elevated, he said, the Fed is lessening the risk of a recession, limiting the scope for yields to fall.
“The Fed is looking to sustain this expansion, not end it,” said Barry. “That’s why rates have not moved aggressively lower.”
Others see a less benign interpretation in the so-called term premium, a measure of the extra yield investors demand in return for holding long-term bonds.
That compensates them for potential risks down the line — like elevated inflation or an unsustainable federal debt load. And that premium has risen nearly a full percentage point since the rate-cut cycle began, according to the New York Fed estimates.
For Jim Bianco, president of Bianco Research, it’s a signal that bond traders are worried that the Fed is cutting rates even as inflation remains stubbornly above its 2% target and the economy keeps defying recession fears.
“The market is really concerned about the policy,” said Bianco. “The concern is that the Fed has gone too far.”
If the Fed continues to cut rates, the mortgage rates will go “vertical,” he added.
There’s also angst that Trump — after breaking sharply from his predecessor’s deference to the Fed’s independence — will succeed in pressuring policymakers to continue cutting rates. Kevin Hassett, the White House National Economic Council Director and a Trump loyalist, is the betting market’s favorite to succeed Powell when his term ends in May.
What Bloomberg Strategists say…
If rate cuts increase the likelihood of stronger growth, they won’t be met with lower yields. We’ll end up with higher ones. In many respects, this is because we’re going back to a normal interest rate regime, where 2% real returns and a 2% Fed inflation target produces a 4% floor for long-term yields. Add in stronger growth and the numbers go higher from there.
—Ed Harrison, Bloomberg Markets Live strategist. Read more here.
So far, though, the broader bond market has remained relatively stable, with 10-year yields hovering not far from 4% over the past few months. And breakeven rates — a main gauge of the bond market’s inflation expectations — have been stable as well, indicating that fears of a Fed-fueled inflation surge down the line may be overstated.
Robert Tipp, chief investment strategist fixed income at PGIM, said it looks more than anything like a return to the normal levels seen before the Global Financial Crisis, which ushered in a long era of unusually low interest rates that abruptly ended after the pandemic.
“We’re back at the normal level of rates world,” he said.
Standard Bank’s Barrow said the Fed’s lack of control over the longer-term yields reminds him of a similar — if opposite — bind the central bank faced in the mid-2000s that became known as the Greenspan conundrum.
At that time, Chair Alan Greenspan was puzzled why the long-term yields remained low even as he jacked up the short-term policy rate. Greenspan’s successor Ben Bernanke later attributed the conundrum to too much savings from overseas flooding into Treasuries.
Today, Barrow said, that dynamic is reversed as governments around major economies are borrowing too much. That saving glut, in other words, has turned into a bond-supply glut that’s keeping consistently upward pressure on yields.
“It’s possibly a structural move that bond yields are not going down,” Barrow said. “At the end of the day, central banks don’t determine the long term rate.”
High valuation metrics prop up Apple’s market valuation. Apple (AAPL 0.75%) is the world’s second-largest company after Nvidia (NVDA 0.56%), with a market cap of about $4.2 trillion. That’s a monster business, but I don’t think it will stay in second place for long. I don’t think it will become the world’s largest company, either.
Photographer: Michael Nagle/Bloomberg (Bloomberg) — There’s a time when investments run their course and the prudent move is to cash out. For global asset managers who’ve ridden double-digit gains in equities for three straight years, that time is not now. “Our expectation of solid growth and easier monetary and fiscal policies supports a risk-on tilt
It’s up 92% this year. The S&P 500 is hitting new highs, and there are signs of a potential stock market bubble. But whatever happens in the short term, the stock market has been a reliable wealth generator for decades, as long as investors hold through volatility. Is there a stock market bubble? Will it
Image source: Getty Images Looking at both the UK and US stock markets right now, it seems a lot of investors are growing nervous of a potential correction or even a full-blown crash in 2026. And it’s easy to understand why. Enormous capital is currently concentrated in AI and ‘Magnificent Seven’ stocks. The S&P 500
Dec. 7, 2025, 5:05 a.m. ET It’s been a rough ride for many parents this year with job losses mounting and inflation that just won’t go away. But amid all that, kids have been the bright spot, according to Greenlight’s family money app. In 2025, Greenlight kids and teens up to age 17 invested more
This market signal may impact stock performance. The S&P 500 has had its ups and downs this year — concerns about President Donald Trump’s import tariff plan, as well as worries about a potential artificial intelligence (AI) bubble forming, have represented headwinds. But the tailwinds have proven to be stronger, as the index reached multiple
Make sure your portfolio is prepared for any kind of market with dividend stocks. As 2025 comes to a close, the S&P 500 is up 16.6%, and there’s real potential of a third year in a row of double-digit gains for the index. Does that spell trouble for 2026? Not necessarily. However, investors should be
Marvell Technology, Inc. (NASDAQ:MRVL) is one of the AI Stocks Analysts are Tracking Closely. On December 3, Goldman Sachs raised the firm’s price target on the stock to $90 from $80 and kept a “Neutral” rating on the shares. The price target raise follows Marvell’s third quarter fiscal year 2026 financial results. “Marvell delivered record
Several companies in big tech have split their stock in recent years. As the end of 2025 approaches, it’s looking like another strong year for the stock market. As of this writing (Dec. 2), the S&P 500 (^GSPC +0.19%) and Nasdaq Composite (^IXIC +0.31%) have gained 16% and 21% on the year, respectively. In a
The prestigious Dow Jones Industrial Average ($DOWI), home to 30 blue-chip leaders across tech, finance, healthcare, and consumer goods, remains a key pulse check on corporate America’s performance. And while it hasn’t matched the stronger gains of the S&P 500 Index ($SPX) or the tech-heavy Nasdaq Composite ($NASX) this year, the Dow is far from
Buffett might be worried about the valuations of stocks today. Warren Buffett has been sounding the alarm bell for quite some time now. Twelve quarters to be exact. That’s the number of consecutive quarters that the billionaire has been a net seller of stocks, meaning his selling has outweighed his buying. On top of this,
Costco’s business continues to perform well. But its stock faces a lack of catalysts and a sky-high valuation. Costco Wholesale (COST 0.13%) shares are slightly negative for 2025 even as the S&P 500 posts strong gains. What gives? There’s a lot to like about the business. The membership-based wholesale retailer’s sales growth remains solid, and
If you are looking for yield as 2025 draws to a close, this pair of dividend stocks looks set to reward you for decades to come. If you are looking to find yield in today’s market, you have to dig a little deeper than usual. That’s because the S&P 500 index is trading near all-time highs
Investors may consider putting these reasonably priced, growth-value hybrid companies under their tree. ‘Tis the season to make smart buys. After you’ve completed your holiday shopping for loved ones, find a little time to go purchase something nice for yourself. Alphabet (GOOG +1.16%) (GOOGL +1.15%), Micron Technology (MU +4.66%), and Cisco Systems (CSCO +0.27%) are
Sticking with this winner should pay off for investors. Nvidia (NVDA 0.56%) has been one of the top-performing tech stocks in recent years. The shares have increased by 22,000% over the last 10 years, 1,230% in the previous five years, and 30% in the last 12 months, outpacing the Nasdaq Composite‘s 20% one-year return. While
The fintech disruptor just announced a surprising equity raise. SoFi (SOFI 6.15%) has been one of the stock market’s better performers in 2025, with shares up by 77% year-to-date. In a nutshell, the fintech disruptor’s business has been growing rapidly and more profitably than most experts had predicted. However, today is another story. On Friday,
Over the previous three years, Nvidia’s (NVDA 0.56%) stock price performance has been nothing short of explosive — and this isn’t because of speculation. The company is selling its cutting-edge graphics processing units (GPUs) almost as fast as it can get them made. And demand shows no signs of letting up, as big tech companies
Nvidia is the world’s largest company, and it gets most of its revenue from AI spending. There are growing concerns about a potential bubble in the AI sector of the stock market. Several companies could fall victim to an AI bubble bursting, but few are as vulnerable as Nvidia (NVDA 0.56%) if AI spending were
(Bloomberg) — What began the year as one of the best trades in the stock market has, in a matter of months, turned into one of the worst. An array of public companies thought they had found a sort of perpetual motion machine: Use your corporate cash to buy up Bitcoin or other digital tokens
