In the best of all worlds, as the Fed moves to raise interest rates, short-term bond yields that impact things like consumer loans would rise gradually, and longer-term rates affecting mortgages would rise more slowly.
Markets got a little taste of that Wednesday when short-term rates rose with the dollar and stocks in response to the Fed. The bond market clearly heard a hawkish central bank Wednesday, expecting slightly more aggressive rate hikes next year and beyond.
But the Fed did not remove dovish language in its statement so stocks moved higher too, interpreting the central bank to be committed to easy policy for quite a while. Some strategists have been looking for a great rotation out of bonds, when the Fed finally signals rate hikes, driving investors to dump bonds en masse.
But BlackRock's Jeffrey Rosenberg says it's another type of rotation that could occur and the response to the Fed's meeting Wednesday was a glimpse of it. Investors may sell the short end, driving yields higher, and stay with the longer end, keeping a lid on long-term rates, which impact mortgages and other longer duration loans.