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[Historical Experience: Long-Term Yields Often Rise After the Fed's First Rate Hike] ⑴ The market focuses on the trend of long-term bond yields after the Fed's first rate hike. Historical patterns show that yields typically rise by about 0.5 to 1 percentage point within one year of the first rate hike. ⑵ Rising bond yields imply a decline in their value. If the Fed attempts to slow the rapid rise in long-term yields through rate hikes, history suggests this is unlikely to succeed. ⑶ The recent surge in bond yields, coinciding with a new round of oil price increases triggered by concerns about Middle East oil supplies, has become a major concern, despite the core CPI falling to its lowest level since early 2021 in August. ⑷ Citigroup's global equity strategy team analyzed the trend of 10-year yields before and after the first rate hike. ⑸ The team stated that while the stock market often fluctuates before and after the first rate hike, buying into any volatility over a one-year timeframe is generally worthwhile, unlike bonds; selling US Treasuries is generally more profitable. (6) With the notable exception of 1997—when the Fed raised rates once and then held them steady, subsequently lowering rates the following year due to the spread of the Asian financial crisis—yields typically rise by about 50 to 100 basis points within a year of the first rate hike. (7) Former Fed Governor Milan believes that rate hikes will be counterproductive, stating that term premiums and inflation expectations are performing well, and the rise in long-term yields is a result of improved growth expectations—a "good rise" rather than a "bad rise"—and therefore does not need to be countered. (8) He also stated that even if controlling long-term yields is considered an effective monetary policy objective, rate hikes will be counterproductive in the current environment because rising short-term financing costs will transmit and push up long-term yields. History has not truly shown that long-term yields will decline with Fed rate hikes, and the inconsistency of the reaction function will ultimately lead to an increase rather than a decrease in risk premiums. (9) Another market participant believes that rate hikes will benefit long-duration government bonds, stating that rate hikes should quell concerns about long-term yields, prevent further increases in interest rate volatility, and believe that unless a genuine tightening cycle occurs that pushes the federal funds rate back to its cyclical high, the impact on the real economy will be minimal. (10) He also compared the current stock market situation to the dot-com bubble period, noting that the Federal Reserve spent most of the last year of the bubble raising interest rates to combat inflation, but that was also the period of the most dramatic stock price increases in the entire cycle. (11) The S&P 500 fell on Monday and Tuesday, but stock index futures rose ahead of the Fed's decision on Wednesday. (12) Overall, historical patterns and current policy dynamics are creating tension; future focus will be on the dot plot guidance and the actual reaction of long-term yields to interest rate hikes.