The yield curve for US Treasuries slightly steeper this week, with the difference between Treasury yields at 2 and 10, which rose to 28 basis points on October 30, two basis points more than the previous week. The yield on the 2-year benchmark remained constant at 2.84% and the benchmark at 10 rose to 3.12%.
The 5-year benchmark yield remained stable at 2.94%, while the 30-year benchmark yield rose slightly to 3.36% on the same day. As a result, the spread between 5-year and 30-year yields rose to 42 basis points, 2 basis points more than last week. T-note prices were affected by the sharp sell-off on the stock market in recent days.
The Fed’s FOMC raised interest rates on September 26 by +25 basis points, ranging from 2.0% to 2.25%, and expected further growth by the end of the year and three in 2019. Fed bankers estimated an increase in US GDP + 3.1% in 2018, an upward revision from the previous projection, equal to + 2.8%. The forecast for 2019 was also revised upwards by a decimal point, to + 2.5%. “” Bringing monetary policy to a slightly restraining level – 3, 3.25% – would be consistent with the strong economy and sustained inflation we are seeing, “” said Chicago Fed President Charles Evans at Bloomberg, while Philadelphia Fed President Patrick Harker suggested to rise to a similar level by 2021, although he also said the Fed needed time, to avoid an excessive rate normalization process reversing the yield curve.
Federal Reserve President Jerome Powell has recently said that the central bank has been able to keep inflation under control by optimizing expectations. “” From the point of view of contingency planning, our path is clear: to conduct a coherent monetary policy, in line with the symmetrical inflation target of 2%, and be ready to act with authority if expectations should materially slide towards up or down, “said Powell. Janet Yellen, a former Fed chairman, expressed concern at the criticism expressed by President Donald Trump on the restrictive monetary policy of the central bank, as these could undermine trust in the central bank. He also expressed his support for further increases in interest rates to keep the US economy on track.