Bond Market Signals It May Be Ready to Take the Fed at Its Word
- Yield curve flattens most in ‘16 for policy announcement week
- Officials still have work to do to get traders on board
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Treasuries traders are signaling a growing conviction that the Federal Reserve will follow through on its projections and raise interest rates in 2016.
One measure of the yield curve -- the extra yield investors demand on 30-year bonds over two-year notes -- shrank nine basis points this week, to about 1.6 percentage points. That’s the sharpest drop this year during the week of a Fed policy announcement. A flatter curve can indicate traders are favoring longer maturities because a potential Fed hike is seen as restraining inflation, preserving the securities’ fixed payments.