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EconomyExplainerPast Article

Why the Two-Year Moves First

The short note is where the next few policy decisions live. The long bond has a longer argument.

By Helen Voss, Rates Columnist

New York1 min read

top-view photography of houses at daytime
top-view photography of houses at daytimePhoto by Tom Rumble on Unsplash

The two-year Treasury yield is a market price for money over the next two years. Most of a Federal Reserve cycle, if there is one, fits inside that window. When traders reprice the path of the policy rate, the two-year note is the instrument that has to move.

The ten-year yield includes that path and then a long stretch of uncertainty after it: inflation, growth, the supply of bonds. It can ignore a single meeting that the two-year treats as urgent. Or it can move more, if the meeting changes the long story.

Neither yield is the federal funds rate. The funds rate is the committee's target, published in the statement. The yields are what buyers and sellers agreed that day, published by the Treasury as par yields. A column that uses one number for the other is mixing a decision with a price.

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