What Happens to a Bond ETF's Price When the Fed Cuts Rates -- Using the Actual Historical Data
Short-term notes tend to be highly influenced by the Federal Reserve. Long-term bonds have been responding to something else.
Overview
When the Federal Reserve cuts interest rates, many people assume that bond prices rise in response. In reality, it's more nuanced.
Short-term Treasuries are more closely correlated with the federal funds rate and often do rise. Long-term Treasuries measured by the performance of the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) may or may not.
That's because they're more heavily influenced by economic conditions, not policy rates. Long-term yields reflect inflation expectations, risk premiums, government debt levels, and the direction of the U.S. economy. In other words, many moving parts are involved in pricing long bonds.
Details
Source
Originally published at www.fool.com.