Steepening Yield Curve Shows Market Isn't Waiting for Fed to Act
- 2- to 10-year Treasuries spread reaches widest since November
- Inflation, growth view pushes market toward 75bps of 2019 cuts
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The steepening U.S. yield curve shows bond traders have concluded that the case for Federal Reserve rate cuts is only strengthening, even as top policy makers signal they’re not yet ready to act.
Futures reflected more than 70 basis points of easing in 2019 at one point Wednesday, a move that helped push key portions of the curve to their widest since at least November. Bets on steepening -- historically the darling trade during easing cycles -- are building amid signs of weakness in U.S. manufacturing and the labor market, with the trade war only threatening to intensify. Add tepid inflation to the mix, and investors see the basis for the Fed’s first rate cut since 2008.