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Fed on Collision Course With Bond Markets in Curve Conundrum

  • Flattening yield curve could derail Fed hike plan: BofAML
  • Inflation expectations drop, yield spreads a policy headache
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UOB’s Heng Koon How discusses the flattening U.S. yield curve and the possibility of a slowdown in the markets.(Source: Bloomberg)
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The conundrum faced by Alan Greenspan is back -- and possibly worse. This time, the Federal Reserve is confronting a “far more dangerous” backdrop in the bond market as it gears up to further raise interest rates.

The prevailing dynamics in the Treasury market -- an ever-narrowing gap between short and longer-term U.S. Treasury yields, and record lows in forward rates for this point in the monetary cycle -- could derail the Fed’s tightening path, according to Bank of America Merrill Lynch.