About Federal and Treasury Interest Rates
Federal interest rate changes are among the most significant factors affecting bond prices which are inversely related to bond yields.
The cardinal rules are:
- When interest rates rise, bond prices fall and bond yields rises
- When interest rates falls, bond prices rises and bond yields falls (vice versa)
When you see the interest rates of the Federal Reserve and 10-year Treasury Bond intersect, this is a divergence of the rule, which is a bearish indicator and a sign of a weakening economy and in some cases, an oncoming recession.
As an example, see the following periods,
- May 2000 - Mar 2001
- Jun 2006 - Dec 2007
We all know what happened in the 6 to 12 months after that!
Click the Month/Year scroll button on 2 ends (left & right) above the chart and drag horizontally to see the graph for a window period
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