Bond Yields and the Fed Funds Rate

Short-term bond yields (e.g., 2-year Treasuries) are highly influenced by expectations for the Fed Funds Rate. If the Fed signals cuts, short-term yields usually fall.

Long-term bond yields (10-year, 30-year):

• Depend more on inflation expectations, growth outlook, and supply/demand dynamics.
• If there is fear of a recession, investors tend to leave stocks and buy bonds causing prices to rise and yields to drop.
• If supply surges (the Treasury issues tons of debt), yields can rise unless demand matches.