If the Fed is cutting, why are interest rates rising?

HIghlights

• Somewhat counterintuitively, U.S. Treasury yields from 1- to 30-year maturities have risen in the three weeks since the Federal Reserve’s (Fed’s) decision to lower the Fed funds rate by 0.50% as incoming data has painted a resilient economic picture and moderated market Fed rate cut expectations.
• Rising U.S. Treasury yields are creating upward pressure in other investment grade fixed income sectors and creating more attractive entry points (i.e., starting yields) for new investments. However, they are also raising interest costs for longer-term borrowers.
• Over the next year, floating rate loans referencing the prime rate and Secured Overnight Financing Rate (SOFR) should see rates decline in direct sympathy with Fed rate cuts, offering a boost to borrowers and economic activity.
• We expect both short- and long-term interest rates to fall over the next year, but especially in the front end of the curve as the Fed normalizes monetary policy.