Much as expected the Federal Reserve Board (FRB) raised rates last week. So, why did the markets rally and longer term rates fall on the news?

Naturally, you would expect markets to retreat as the FRB tightens monetary policy. It usually signals the end of loose consumer spending and less consumer debt creation. It also can signal less business expenditures as key interest rates move north; their debt servicing expenses follow closely.

As rates head north on the short end of the spectrum, typically longer term treasuries do something similar. The yield you can earn on a long-term bond is usually higher than that of a short-term bond. It is the premium you get for committing your money to a longer vehicle.

So, why did they move contrary to the norm? The devil is in the details. The FRB minutes showed a rather dovish stance. The FRB still expects to raise rates three times this year and has eliminated much of the concern that open market activity will become an issue later on this year. Till the release of the minutes, there was much speculation that the rate hike environment was going to become more aggressive and that the FRB was going to begin pairing down their balance sheet sooner rather than later. With those concerns subsiding, the markets were able to retrace some of their negative speculation.

For more information:

If you would like to receive this weekly article and other timely information follow us, here.

Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long term holding strategy is the best strategy in any market environment.

Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.