Rising short-term interest rates were a drag on U.S. markets in 2005, as the Federal Reserve continued to tighten monetary policy. The Federal Reserve raised short-term interest rates by 2% in 2005, but it was somewhat defeated in its efforts by the long end of the bond market. Long bonds refused to submit to the Fed’s higher rate message with long-term bond yields dropping by almost 0.5% over 2005. We saw this particularly in Canada, where higher short-term interest rates were accompanied by significantly lower long-term interest rates.
Read the full newsletter at the link below.Canso March 2006 Market Observer