<p>Perhaps you are confusing bond prices with yields? When bond prices go up, payments relative to the price the bonds are purchased will go down, and thus by definition yields go down.</p>

<p>The Fed mainly controls rates through <a href="https://en.wikipedia.org/wiki/Open_market_operation" rel="nofollow noreferrer">open market operations</a>, and more recently <a href="https://en.wikipedia.org/wiki/Quantitative_easing" rel="nofollow noreferrer">quantitative easing</a>. In short, when attempting to cut rates, the Fed purchases securities such as US government bonds and in turn injects <a href="https://en.wikipedia.org/wiki/Federal_Reserve_Note" rel="nofollow noreferrer">Federal Reserve Notes</a> into the system. This has the two simultaneous effects: it raises the prices of bonds purchased and thus lowers their yields, and increases the money supply, lowering interest rates.</p>

CC BY-SA 4.0
2019-09-03T07:44:11.453Z
2019-09-03T07:44:11.453Z
Kent Shikama
<p>Fed cut its rates for the first time in 10 years in July and it is about to cut the rates at least by 25 basis points during its September meeting.</p>

<p>Usually, when Fed cuts the rates the bond yields should go up as the economy will expand instead of contracting. But why are the yields of the bonds so low?</p>

CC BY-SA 4.0
2019-09-02T07:54:35.193Z
Your statement *"Usually, when Fed cuts the rates the bond yields should go up"* looks peculiar
Henry
CC BY-SA 4.0
2019-09-03T08:47:24.537Z
If a variable changes, in either direction, by a small amount it can still be "low". There's no contradiction requiring an explanation. This question would probably be better as either a question about the level of a variable or a change in the level of that variable. It's better to pick one in order to make the question easier to understand.
H2ONaCl
CC BY-SA 4.0
2019-09-04T06:26:05.207Z
I think there is a misunderstanding of what the "*yield*" of a bond means. It is impossible by definition to expect that lowering the fed funds rate would increase the yield of bonds.
jojobaba
<macroeconomics><federal-reserve><bonds>
Why are bond yields so low when Fed is cutting rates?
nsivakr
# Why are bond yields so low when Fed is cutting rates?

(Asked by: username_0 on 2019-09-02)

Fed cut its rates for the first time in 10 years in July and it is about to cut the rates at least by 25 basis points during its September meeting.

Usually, when Fed cuts the rates the bond yields should go up as the economy will expand instead of contracting. But why are the yields of the bonds so low?

**Tags:** macroeconomics, federal-reserve, bonds
> **Comments:**
> **username_1**: Your statement *"Usually, when Fed cuts the rates the bond yields should go up"* looks peculiar  
> **username_2**: If a variable changes, in either direction, by a small amount it can still be "low". There's no contradiction requiring an explanation. This question would probably be better as either a question about the level of a variable or a change in the level of that variable. It's better to pick one in order to make the question easier to understand.  
> **username_3**: I think there is a misunderstanding of what the "*yield*" of a bond means. It is impossible by definition to expect that lowering the fed funds rate would increase the yield of bonds.  

---

## 1 answers

### Answer by username_4 on 2019-09-03. Score: 2

Perhaps you are confusing bond prices with yields? When bond prices go up, payments relative to the price the bonds are purchased will go down, and thus by definition yields go down.

The Fed mainly controls rates through [open market operations](https://en.wikipedia.org/wiki/Open_market_operation), and more recently [quantitative easing](https://en.wikipedia.org/wiki/Quantitative_easing). In short, when attempting to cut rates, the Fed purchases securities such as US government bonds and in turn injects [Federal Reserve Notes](https://en.wikipedia.org/wiki/Federal_Reserve_Note) into the system. This has the two simultaneous effects: it raises the prices of bonds purchased and thus lowers their yields, and increases the money supply, lowering interest rates.


---

