2023-07-03 13:55:07
In the U.S. Treasury market on the 3rd, the phenomenon of inverted yields (reversal of long-term and short-term yields) of major maturities is approaching a wide range not seen in decades. This is due to expectations of further tightening of US monetary policy.
Two-year yields climbed to 4.96%, up 110.8 basis points above 10-year yields. The 2- to 10-year yield curve inverted to 110.9 basis points in March, the widest since the early 1980s, according to data compiled by Bloomberg.
2-10 year bond spread
Source: Bloomberg
The inversion of the yield curve is gaining momentum amid growing expectations that the policy rate will be raised by 0.25 percentage points this month and once more later this year. The interest rate swap market is currently pricing in a rate hike of regarding 23 basis points at the July 25-26 Federal Open Market Committee (FOMC) meeting. It reflects the market’s view that there is a 100% chance of a rate hike by September and a roughly 50% chance of another rate hike before the end of the year.
The FOMC left its policy rate unchanged at its June meeting to assess the impact of previous rate hikes on the economy, temporarily halting its 10 consecutive rate hikes. Since then, however, a series of stronger-than-expected economic data has raised the possibility of further tightening.
Original title:Treasury Yield-Curve Inversion Approaches Multi-Year Extreme(excerpt)
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