The 2-year yield rose 13 basis points after the Fed hike. Long Treasuries still gained
The 2-year Treasury yield rose 13 basis points to 4.76% in the week ended Friday, September 18, after the Fed raised its target range to 3.75%-4%; the 30-year yield slipped 1 basis point to 5.34%.
Federal Reserve Chair Kevin Warsh raised the federal-funds rate on Wednesday, September 16, 2026, for the first time in three years, then told reporters, “My business is to not give forward guidance.” The Census Bureau had reported that morning that August retail sales rose 1.2%. The Committee hiked into a consumer print that was still expanding and declined to map the next move in words. The Treasury curve mapped it instead: two-year yields sold off, 30-year yields did not, and funds that hold 20-plus-year Treasuries made money.
Warsh hiked and the dots left 2027 without a cut
On Wednesday the Federal Open Market Committee voted 12-0 to raise the federal-funds target range by a quarter point to 3.75% to 4%. The statement said inflation remains elevated and that the action would support a timelier return to the 2% goal. Warsh told reporters he would be “hard-pressed to describe broad financial conditions as restrictive,” and that the Committee had “removed a dose of accommodation.”
The Summary of Economic Projections is the map he would not speak. The median funds-rate projection is 4.1% at the end of 2026 and 4.1% at the end of 2027, against 3.8% and 3.6% in June. The 2028 median is 3.9%, against 3.4% in June. Another hike sits in this year’s median; 2027 no longer contains a cut.
The 0-3 month Treasury bill fund SGOV holds $110 billion, more than twice the $46.7 billion in the 20-plus-year Treasury fund TLT.
The 2-year yield did the selling
From Friday, September 11, to Friday, September 18, constant-maturity par yields moved as follows: the 2-year from 4.63% to 4.76%, the 5-year from 4.78% to 4.86%, the 10-year from 4.96% to 5.01%, the 30-year from 5.35% to 5.34%. Thirteen basis points at two years, eight at five, five at ten, and minus one at thirty. The gap between 2-year and 10-year yields compressed to 25 basis points from 33 a week earlier.
That flattening is a continuation, not a one-week accident. Extending from bills stopped paying after the 2-year yield rose 26 basis points: two weeks ago the 2-year was 4.37%. It has now risen 39 basis points in a fortnight. The front end is where policy is being priced. The long end, this week, did not go along.
TLT rallied the day after the hike; SHY finished lower
- TLT · 81.25
- SHY · 81.24
Total return, September 11 close through September 18:
Long duration won the week and is still down for the year. Bills and loans are up in both windows. That is the year’s bond sleeve in one grid: carry has been the paid job, duration has not, and this week’s flattening did not reverse that.
Investment-grade spreads tightened; high-yield spreads did not
Rates and credit split this week. The ICE BofA U.S. Corporate option-adjusted spread, as of Thursday, September 17, was 0.78%, 2 basis points tighter than the 0.80% close on September 11. LQD returned 0.36%. Some of that is the long-end bid that also lifted TLT; some of it is 2 basis points of spread. Short investment-grade corporates did not get the same help. The 1- to 3-year investment-grade fund SPSB lost 0.07%, in line with SHY.
High yield went the other way. The ICE BofA U.S. High Yield option-adjusted spread closed Thursday at 2.70%, 5 basis points wider than 2.65% on September 11, after touching 2.76% on Tuesday. SPHY lost 0.09%. A 5-basis-point widening is not a credit event.
Floating-rate loans did what they are built to do when the funds rate goes up. BKLN returned 0.34%. The coupons reset; the price did not have to absorb a 13-basis-point 2-year selloff.
TIP lost 0.54% and closed at a 52-week low of $105.27: inflation-indexed 10-year yields rose from 2.60% on September 11 to 2.68% on the hike day, so real yields went up and the breakeven did not help.
Long yields fell on a credibility read
“We believe equities responded positively and long-term bond yields declined following the hike because the move reinforced the Fed’s inflation-fighting credibility and independence,” said Angelo Kourkafas, senior global strategist of investment strategy at Edward Jones. That is his explanation for why the 30-year yield slipped while the Committee was hiking. The dots still contain no cut for 2027.
Frequently asked
Why did long Treasury yields fall while the Fed was hiking?
One strategist quoted in the piece said the hike reinforced the Fed's inflation-fighting credibility and independence, which supported long-term bonds.
Which bond funds made money on the week?
The 20-plus-year Treasury fund, investment-grade corporates, senior loans and T-bills were up, while short and intermediate Treasuries, high yield, munis and TIPS were down.
Did credit sell off?
Investment-grade spreads tightened by 2 basis points while high-yield spreads widened by 5, a move the article calls not a credit event.
What do the Fed's projections show for next year?
The median funds-rate projection is 4.1% at the end of both 2026 and 2027, meaning another hike this year and no cut in 2027.