The U.S. bond and stock markets are experiencing significant shifts following the Federal Reserve's decision to sustain high interest rates, a move aimed at countering inflation. This development has particularly impacted municipal bonds and the S&P 500 index.
On Thursday, the yields of municipal bonds, including top-rated ones, saw an increase of up to 10 basis points during morning trades. This surge brought the 10-year yield to 3.08%, a level not seen since the previous November. Short-term securities are currently yielding 3.55%. The Federal Reserve's stance has not only affected municipal bonds but has also pushed long-dated Treasury yields to new multi-year highs, with yields on securities due in a decade reaching their highest since 2007.
The repercussions of the Federal Reserve's decision have also spilled over into the stock market, causing a downturn in the S&P 500. The index dropped around 1%, marking its lowest point since June.
This comes after Wednesday's announcement by the Federal Reserve to maintain interest rates at a 22-year high. A majority of policymakers showed support for an additional rate hike within this year. James Bullard, former President of the Federal Reserve Bank of St. Louis, suggested that further increases in interest rates might be necessary to guard against potential inflation spikes.
These recent developments highlight the central bank's dedication to combating inflationary pressures and suggest possible future shifts in both bond and stock markets.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.