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A quarter-percentage-point increase in the Federal Reserve's overnight rate pulled 10-year Treasury yields lower on Wednesday, as traders wagered the move would be enough to bring inflation under control.
The bond market moved in a direction that ratified the Fed's tightening intent. The Federal Reserve's overnight target is the instrument. The 10-year Treasury yield is the verdict.
These two rates can diverge: the short end is set by policy; the long end is set by what traders believe policy will eventually produce in terms of growth and inflation across the coming decade.
Wednesday's price action followed a logic the bond market runs regularly. When a rate hike is read as credible on inflation, the inflation premium embedded in longer maturities compresses.
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