The Fed’s tough line rattles the US bond market

Posted Apr 6, 2022, 6:22 PMUpdated on Apr 6, 2022 at 7:03 PM

The rout is far from calming down on the US government bond market. The 10-year Treasuries rate took up 10 basis points (bp) on Wednesday, to reach 2.65%. A level that had not been recorded since March 2019. Over the year, the increase amounted to 1,100 basis points, a record. When the rate of a bond goes up, its value goes down.

This new outbreak of fever is due to the particularly aggressive remarks, in terms of monetary policy, of Lael Brainard. “We will continue to tighten our monetary policy in an orderly manner, carrying out a series of interest rate hikes and starting to reduce our balance sheet at a rapid pace from our meeting in May,” said this senior figure in the US Federal Reserve. In other words, the central bank will allow the bonds in its portfolio to expire, without reinvesting the amounts resulting from their reimbursement.

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