What Another Operation Twist Means for the Markets

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"Come on let's twist again, Like we did last summer! Yeaaah, let's twist again, Like we did last year!"

– Chubby Checker

During the last half of 2020, bond yields flat lined at historically record low yields. The message was clear: Bond investors did not fear inflation. The tone changed abruptly in early January when the 10-year U.S Treasury yield rose above 1.00%. In February, five-year Treasury yields crossed 0.50%, which raised alarms for global investors.

Despite stock market trepidation over rising yields, the Fed remains calm. Some Fed members are applauding higher yields. The following four comments came from three Fed members on February 25, 2021, the day in which the five-year Treasury notes gapped higher by 25 bps:

  • Jim Bullard: "The rise in bond yields is a good sign so far."
  • Esther George: "Long tern yield rise doesn't warrant monetary response."
  • Raphael Bostic: "I am not worried about move in yields."
  • Raphael Bostic: "(The Fed) doesn't need to respond to yields at this point."

Quite often, Fed members make statements that turn out to be not true. The comments above fit this bill.