Typically, an interest rate hike has the opposite effect on markets. As interest rates increase, demand for short-term bonds, such as the 2-year, 5-year, and 10-year Treasury bonds increases. In turn, this has the effect of driving down prices for these instruments and increasing associated yields.
So when there is a rate hike, prices from treasury bonds drop (to get a bigger difference between: current price -> money payed on expiration, which gives you a better return).
But since the price drops, this also means that it is not a good investment product to own when there is a rate hike?
And wouldn't the demand for treasury bonds rise, because the return is bigger (the difference between the money you get on expiration and the money you bond the treasury bond for, increases).
Submitted March 04, 2017 at 08:04AM by anonarwhal http://ift.tt/2mpl0U9
