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Treasuries vulnerable to a recalibration of rate expectations

Ignoring term premiums, the yield of a “risk-free” government bond is a reflection of the short-term rates that are expected until it matures. So if the Fed raises the federal funds rate, there ought to be no effect on Treasury yields provided the change does not alter investors’ expectations of how the rate will evolve in the future. However, this is very unlikely in practice.

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