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Turbocharged Treasury Curve Flattening Halted in Wake of Powell

  • Initial post-FOMC decision flattening reversed as Powell spoke
  • Breakevens jump as Powell threads needle on Fed policy path
Updated on

Popular trades in the bond market were whipsawed after Federal Reserve Chair Jerome Powell indicated that monetary-policy tightening would still be gradual even as officials boosted the amount of interest-rate hikes they predict for next year.

The two-year Treasury yield -- which is closely tied to expectations for the main policy benchmark -- jumped to 0.72% in the wake of the Federal Open Market Committee’s policy statement Wednesday, which announced an accelerated exit from the central bank’s bond-buying program and showed a majority of officials predicting at least three quarter-point rate increases next year. But that move was soon unwound amid comments from the central bank boss, with the rate ending the day around 0.66%, while longer-end yields rebounded and bond-market expectations for inflation jumped.