Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Boston
Current Policy Perspectives
SNAP: should we be worried about a sudden, sharp rise from low, long-term rates?
Ali K. Ozdagli
Abstract

Despite the expectations of FOMC and market participants at the beginning of 2014 to the contrary, the yield on 10-year U.S. Treasury debt declined by about 50 basis points from 2.72 percent at the beginning of 2014 to 2.17 percent as of December 22, 2014. This raises the worrisome possibility that we might observe a sudden change in longer-term yields once the Federal Reserve announces an increase in short-term rates. In other words, longer-term rates could snap, very much as they did in the summer of 2013 after the tapering announcement, once the Fed announces its first short-term rate hike indicating the end of the era of loose monetary policy. In order to study this possibility, this paper examines reactions to Fed announcements during the period when conventional monetary policy tools were used, to investigate whether FOMC announcements that imply reversals in the monetary policy stance have a greater effect on longer-term Treasury yields than similar monetary policy actions that do not imply a policy reversal.


Download Full text
Cite this item
Ali K. Ozdagli, SNAP: should we be worried about a sudden, sharp rise from low, long-term rates?, Federal Reserve Bank of Boston, Current Policy Perspectives 14-11, 01 Dec 2014.
More from this series
JEL Classification:
Subject headings:
For corrections, contact Catherine Spozio ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal