Yesterday was one of my favorite kinds of market days.
The Federal Reserve didn’t raise interest rates.
And interest rates exploded higher anyway.
If that sounds backwards, good. It should.
Because this is one of the biggest mistakes investors make. They hear “the Fed held rates steady” and assume interest rates aren’t moving.
Meanwhile, the market is doing the exact opposite.
As I write, the 10-year Treasury yield is pushing around 4.70%, while the 30-year Treasury has climbed above 5.20%, the highest levels we’ve seen since 2007.
The headlines said, “No rate hike.”
The bond market heard something completely different.
The Fed Doesn’t Set Those Rates
Here’s where people get confused.
When the news says “interest rates,” they’re almost always talking about the federal funds rate. That’s the overnight rate banks charge each other.
Unless you’re a bank, who cares?
I’m interested in the rates that actually affect people.
The 10-year Treasury is the benchmark for the financial system. The 30-year Treasury helps drive mortgage rates.
Those are the rates businesses borrow at. Those are the rates home buyers care about.
Those are the rates investors should be watching.
And those rates don’t ask the Fed for permission.
They trade every second of every day.
The bond market is one giant auction. Millions of buyers and sellers are constantly deciding what money should cost.
Sometimes the Fed agrees with the market. Sometimes it catches up later.
Yesterday was another reminder that the market doesn’t wait around for a press conference.
We Already Saw This Movie
If you’ve been reading Everybody’s Wrong, this shouldn’t surprise you.
Back in March, I wrote a post called The Fed Is Cutting. Rates Are Rising.
That sounded crazy at the time.
After all, if the Fed is cutting rates, shouldn’t rates go down?
Instead, the opposite happened.
The day the Fed began cutting rates back in 2024 turned out to be almost exactly when long-term yields stopped falling and started climbing.
Now, we’re seeing the same lesson from the other direction.
The Fed doesn’t hike. Long-term rates rise anyway.
That’s because markets are forward-looking. They don’t price where things are today. They price where they think things are going tomorrow.
By the time the Fed actually changes policy, the bond market has usually been making that move for a while.
That’s why we spend our time watching prices instead of trying to guess what a committee in Washington might do next.
The market already voted.
Follow the Market, Not the Headlines
This is why I care so much more about Treasury yields than Fed headlines.
If you’re buying a house, your mortgage doesn’t care what the headline says after an FOMC meeting.
If you’re running a business, your financing costs don’t care whether CNBC calls it a pause.
The market decides what money costs. The Fed reacts.
Sometimes it reacts quickly. Sometimes it reacts months later.
But the market almost always gets there first. Yesterday was just another reminder.
The news said there were no rate hikes. The market said rates were going higher anyway.
I’ll keep listening to the market. It’s usually the one that’s right.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs