How does a hike in interest rate results in drop in yields of treasuries?
My understanding was that when interest rate rises, investors would sell-off bonds, which would result in increase in yields.
1
$\begingroup$
$\endgroup$
2
$\begingroup$
$\endgroup$
What happened was that the Fed indeed hiked by 25bp (as expected) but also conveyed the message that future hikes would be quite gradual (this was not expected). The market therefore altered its expected path of Fed funds downwards and hence the yield of Treasuties downwards. It's all about what happened versus previous expectations.
