On the day the Federal Reserve implemented its plan to raise interest rates, driving up overnight borrowing costs, broader market forces conspired instead to drive other U.S. interest rates down.
The Fed increased its overnight target rate for lending between banks early Thursday, hitting 0.35%. But yields on Treasurys—from one-month bills to 10-year notes—fell as demand from investors drove prices higher.
It is a conundrum that Fed officials have grappled with for months leading up to the decision to end seven years of near-zero rates. While the Fed can orchestrate a rise in its overnight target rate, buying and selling by investors worldwide largely dictate the movement of yields in the $12.8 trillion Treasury market, a forum that effectively sets the borrowing rates for everything from mortgages to corporate loans.
Strong global demand for U.S. Treasurys, which tends to push down yields, is potentially creating a conflict with the central bank’s plans to raise U.S. interest rates.