Scott Kahan: What’s Up With This Volatility in the Bond Market?

Scott Kahan: What’s Up With This Volatility in the Bond Market?: Scott Kahan, Certified Financial Planner ™ professional in Chappaqua and NYC, discusses the normalization of the economy as we leave the zero-interest rate era behind and how bonds move in trading ranges just like stocks.

What happened to our glide path down on bond yields?

People expect when the Federal Reserve lowers rates and hints at further cuts that bond prices will march in orderly fashion up as yields decline. But bonds move in jagged lines in the short term while they follow their longer-term trajectory up or down just like stocks.

There are trading ranges for bonds too…

Exactly and bonds are in a trading zone now. The 10-year Treasury bond for instance that has recently risen to 4.3% from 3.75% has been more volatile than we would like to see. That can be confusing for some investors.

A year ago, the 10-year was at 4.875%. The Fed lowered rates a half point—in line with the performance of the 10-year Treasury. Today. So, the question is why the 10-year overshot Fed moves…

And why did it bounce back up?

The answer is that the market baked in future rate cuts shooting yields below current levels and with the economy showing continued strength the market is not as confident with the speed of future cuts. The market has been expecting another 50 basis point rate reduction in November to match Jay Powell’s September cut. Now, market sentiment is anticipating a 25-point cut in November and in general a slower glide down. So, bonds are trading in a range, awaiting future news, just like stocks do.

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