Lending is pretty clear to me as it is explained in many online articles. To my understanding, the US Federal Reserve will increase the interest rates for it to lend money to major banks when it wants to stifle inflation. The increased rates on the major banks relays onto the consumer in the form of higher mortgage and credit card rates. Consumers buy less when it is more costly to borrow money.
I haven't read any explanation about why the Federal Reserve will increase rates on Treasuries. Through Treasuries, they are borrowing money from people and paying them interest.
- What factors make the Federal Reserve increase Treasury rates?
- Does the lending rate always move in the same direction as the borrowing rate? Recently, we just saw an increase in both rates. Is this a coincidence or is there a relation?
The yield on the 10-year Treasury had hovered below 3% for months. Then, in mid-September the yield broke through that magic number, past May’s high of 3.11%, and now sits at around 3.24%, its highest yield in 7 1/2 years.