The Federal Reserve did what markets expected this week. It raised the federal funds target range by 25 basis points to 3.75%–4.00%. Normally, a rate hike sounds negative for both stocks and bonds. Higher rates increase borrowing costs and usually put pressure on asset prices. But something interesting happened after the decision. Long-term Treasury yields

Markets are entering Wednesday’s Federal Reserve meeting with a strong expectation. Fed Funds futures are pricing roughly a 90% probability of a 25-basis-point rate hike at the September 16 FOMC meeting. Reuters also reported that most economists now expect the Fed to raise rates. That is a major shift from only a few days earlier.

The U.S. Treasury made an interesting move this week. It announced that it would buy back up to $6 billion of Treasury debt maturing in 10 to 20 years, triple the previous $2 billion maximum for long-dated buybacks. The goal was mainly to improve liquidity in older Treasury securities. Normally, more buying should support bond