Why Long-Term Bond Yields Are Resisting Fed Rate Cuts
By Edward P. Mahaffy, MBA, CFP®, ChFC®
Bond Market Rejection Unseen in Decades
As the U.S. bond market awaits the widely expected series of further rate cuts by the Fed, the U.S. dollar continues to weaken versus some currencies in anticipation. Even so, yields for 30-year bonds as well as the benchmark 10-year note exhibit a certain reluctance to pop the champagne cork just yet. According to Bloomberg, the 30-year is still trading near 5.0%, while the 10-year changes hands at 4.15%. Even as yields on 2-year notes have plummeted from well over 5.0% to roughly 3.5% on January 8th, bond yields are still significantly higher than when the Fed embarked upon its easing campaign in the fall of 2024.
Why Long-Term Bonds Aren’t Behaving As Expected
When the Fed began easing, the 10-year note yield was approximately 3.6%. Immediately after the first rate cut, bond prices began to weaken. The selloff gathered steam over the following six months or so, finally finding terra firma at a yield of 4.80%. And this selloff was on the heels of reduced issuance of longer-term paper in an effort by the U.S. Treasury to curtail supply in the face of weaker global demand for U.S. government debt—a policy that is still very much in place. One wonders where yields would be today without it as well as what the future may hold with the growing dependence on short-term debt issuance as we struggle to finance enormous debt and deficits.
An Unusual Market Rejection, Decades in the Making
I have managed fixed-income portfolios for financial institutions and high-net-worth (HNW) individuals for over 30 years. Never have I witnessed such rejection—at least not in the bond market anyway. Normally one would not expect to see the bond market protest like this in the face of Fed easing. But the post-COVID inflation has been stubborn, and even though AI and other advancements may one day slay the inflation dragon, it hasn’t happened yet and bond holders remain wary.
Inflation, Global Yields, and Policy Uncertainty
Nagging inflation may only be part of the reason bond yields have exhibited such reluctance to fall in sympathy with the yields for shorter-term instruments. The JGB just struck its highest yield in decades this week and yields on other sovereigns remain higher as well. Moreover, not everyone believes that the next Fed chair will be able to build the consensus necessary to bring about the magnitude or the velocity of further rate cuts that the market now expects.
Regardless of who the next Fed chair may be, he will only have one vote. However, if the choice is Kevin Warsh, another seat will open as he moves to chairman—something to think about.
What Could Shape Bond Markets Going Forward
If a weaker employment picture continues and we do get a series of further rate cuts, the dollar could weaken further, potentially stimulating the economy, which may prove to be another headwind for bond prices. Add in the coming stimulus checks, SCOTUS ruling on Trump’s tariffs, and the mid-terms and you have considerable uncertainty.
Navigating Today’s Bond Market With Discipline and Perspective
In an environment where long-term bond yields are defying conventional expectations, investors would be wise to remain cautious and disciplined. Structural forces (persistent inflation pressures, global rate dynamics, fiscal uncertainty, and political considerations) continue to influence the bond market in ways that defy simple narratives.
For retirees and pre-retirees who rely on fixed income for stability and income, this is not a market to navigate on autopilot. Portfolio construction, duration management, and tax-aware positioning matter more than ever.
At ClientFirst Wealth, Legacy & Estate Planning, we help clients think through these complexities with a long-term, fiduciary lens. If you would like to discuss how today’s bond market dynamics may affect your portfolio or retirement income strategy, I welcome the conversation.
You can reach me at (501) 603-0406 or ed@clientfirstwm.com. You may also download a complimentary copy of my book, How to Select a Financial Advisor: The Least You Should Know, for additional perspective on working with a fiduciary advisor.
Frequently Asked Questions
Why are long-term bond yields resisting expected Fed rate cuts?
Long-term bond yields remain high despite Fed rate cuts due to persistent inflation pressures, limited long-term debt issuance, and global yield dynamics. At ClientFirst Wealth, we help clients understand these market forces and adjust their portfolios to manage risk and preserve income.
How do Fed rate cuts affect bond prices and yields?
Typically, Fed rate cuts lower short-term interest rates, which can increase bond prices and lower yields. However, long-term bond yields may not fall if inflation expectations, fiscal policies, or global interest rate trends create headwinds. Our team works with clients to navigate these complexities with a disciplined, fiduciary approach.
What should retirees and pre-retirees know about navigating today’s bond market?
In today’s environment, retirees and pre-retirees should focus on disciplined portfolio construction, duration management, and tax-aware strategies. Long-term bond yields may remain elevated, making careful planning critical for income stability and retirement confidence.
About Edward P. Mahaffy, MBA, CFP®, ChFC®
Ed Mahaffy founded ClientFirst Wealth, Legacy & Estate Planning in 2007, after more than 23 years in the wealth management industry. Prior to launching ClientFirst, he spent 6 years as a portfolio manager and branch manager with Raymond James, 6 years as a vice president and portfolio manager with Merrill Lynch, and over 11 years as a financial advisor and fixed-income portfolio manager with Stephens, Inc.
At ClientFirst, Ed is president and senior portfolio manager. As a fiduciary, fee-only advisor, Ed is committed to putting clients’ interests first and providing objective, client-centered guidance. He takes pride in helping families enjoy financial peace and confidence through comprehensive services including financial planning, retirement planning, investment management, tax-advantaged strategies, and retirement plan advisory.
Designated as a CERTIFIED FINANCIAL PLANNER® and Chartered Financial Consultant®, Ed holds a Bachelor of Science in Business Administration from The Citadel and earned his MBA from the University of Arkansas. He has had articles published in numerous publications, including Barron’s magazine. He enjoys spending time with his family, outdoor activities, reading, and exercising. To learn more about Ed, connect with him on LinkedIn.
This presentation is not an offer or a solicitation to buy or sell securities. The information contained in this presentation has been compiled from third-party sources and is believed to be reliable; however, its accuracy is not guaranteed and should not be relied upon in any way whatsoever. This presentation may not be construed as investment, tax or legal advice and does not give investment recommendations. Any opinion included in this report constitutes our judgment as of the date of this report and is subject to change without notice.
Additional information, including management fees and expenses, is provided on our Form ADV Part 2 available upon request or at the SEC’s Investment Adviser Public Disclosure website, www.adviserinfo.sec.gov. Past performance is not a guarantee of future results.