Fed Set to Slash Rates by 25 Basis Points on September 17—So Why Are Treasury Yields Climbing Instead?

Markets brace for dovish pivot as Fed prepares 25-point cut—but bond markets aren't playing along.

The Yield Conundrum

Treasury yields defy conventional wisdom, climbing higher despite looming rate reductions. Investors scramble to decode the signal from the noise—because when the Fed cuts and yields rise, someone's not reading the script.

Powell's Puzzle

The Fed's anticipated move clashes with bond market behavior, creating the ultimate monetary policy paradox. Maybe bond traders know something the rest of us don't—or maybe they're just over-caffeinated and guessing like everyone else in this circus.

September Showdown

All eyes on the 17th as the Fed makes its move against rising yield pressures. Because nothing says 'sound monetary policy' like watching the bond market completely ignore central bank signals.

Bond market pushes back as inflation and debt explode

Over the past five weeks, the U.S. Treasury has issued over $200 billion in new bonds. But investors are walking away. The usual appetite for long-dated debt just isn’t there. Buyers want more in return.

That’s seen in the term premiums on 10-year notes, now at the highest level since 2014. Term premiums measure the extra payoff buyers demand for holding longer debt, and right now, that premium is flashing red.

Core inflation is above 3% again and heading higher. At that rate, the dollar loses over 25% of its value in the next ten years. It’s already lost about 25% since 2020, compounding pressure on consumers. That hasn’t slowed Washington’s spending.

The more debt they create, the more the market resists. And the Fed? It’s losing control of the entire yield curve. The United Kingdom is already dealing with the fallout. The Bank of England cut rates five times in one year, blaming a weak labor market. But the result is ugly.

The UK’s 30-year bond yield just moved above 5.70%, the highest since April 1998. Instead of softening borrowing costs, their cuts sent yields to a 27-year high. Traders rejected the central bank’s MOVE and demanded higher compensation for risk. The exact same playbook is now playing out in the U.S.

Japan is feeling it too. The 30-year Japanese Government Bond yield now sits above 3.20%, more than 30 times higher than where it was in 2019. The global bond market is sending a message: central banks can’t buy their way out of structural debt anymore.

Gold rallies, stocks bleed, and stagflation takes hold

One asset isn’t confused. Gold is charging higher with near-perfect alignment to long-term yields. As bond yields move up, so does gold. And now, it’s made history. Gold hit $3,600 per ounce for the first time. That’s a +33% gain year-to-date, more than 3.5x the return of the S&P 500.

Traders aren’t running to stocks. They’re dumping them. On Tuesday, the Dow Jones Industrial Average fell 249.07 points, closing at 45,295.81. The S&P 500 lost 0.69% to end at 6,415.54, while the Nasdaq Composite dropped 0.82%, closing at 21,279.63. Big names bled. Nvidia dropped 2%, while Amazon and Apple slid about 1% each.

The season is part of it. September is historically brutal for equities, and traders are taking profits after a hot summer. August was strong. The S&P 500 climbed almost 2%, broke 6,500 for the first time, and hit five new all-time highs, bringing the 2025 total to 20. But now, all eyes are on Friday’s jobs report. That will likely be the final data point the Fed reviews before its rate decision.

The unemployment rate for 16 to 24-year-olds has hit 10%, and that’s likely what the Fed will cite when it justifies the cut. But the timing is ugly. Inflation is climbing, the labor market is weakening, and economic growth is slowing. That’s stagflation, and it’s now a reality.

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