Conference Agenda

We examine the impact of monetary policy transmission on households’ and firms’ long-duration liabilities using high-frequency variation in 10-year swap rates around FOMC announcements. We find that mortgage rates respond about three weeks after monetary policy announcements at which point they move one-for-one with 10-year swap rates, leaving little explanatory power for credit risk, mortgage concentration, or bank market power. Changes in credit risk do materially affect monetary policy transmission into corporate bonds. We show that expected future short rates and movements in convenience yields play a significant role in explaining both mortgage rates and corporate bond yields. Finally, we assess the implications of our findings for banks’ net worth. Outside of unconventional monetary policy interventions, the banking industry is highly exposed to shocks in long-term rates, with bank stocks increasing by 7.91% for every 1% positive surprise to the 10-year swap rate.