Will the FOMC meeting help alleviate consumer anxiety?”
How the Federal Funds Rate Affects 10 Year Treasury Bond Yields Kane Snyder PricewaterhouseCoopers LLP; Alum June 2005 Abstract: Macroeconomic theory tells us that long-term interest rates tend to move in the same direction with short-term interest rates. So, we would expect the yield on a long-term asset like the10-year Treasury bond to move up when a short-term rate like the federal funds rate moves up. However, a cursory reading of financial news sources since the FOMC began its rate hike policy, through January 2005, show that the yield on the 10-year has actually fallen. This study will develop a predictive model to describe this direct influence and conclude that the federal funds rate directly influences the 10-year Treasury bond yield. This study will not try to predict what factors could be holding the yields down in any quantifiable way. The 10-year Treasury bond yield is a benchmark rate, important to bond investors looking for future indicators of inflation, and to areas su
