Treasury Yield Spreads Flatten, But No Downturn Yet
Although the difference in yields between shorter-dated and longer-dated Treasury bonds has grown narrower this year, theoretically portending a recession, Federal Reserve Bank of San Francisco economists don’t see imminent risk of a downturn.
In a research paper, the San Francisco Fed’s Michael Bauer and Thomas Mertens note that the yield curve is not yet inverted. Specifically, they note that the 10-year/three-month spread between Treasury rates is “nearly one percentage point away from an inversion.” Moreover, Bauer and Mertens urge “great caution… in interpreting the predictive evidence.”
Yet, some Fed officials are wary over the prospect of a yield curve inversion. Atlanta Fed president Raphael Bostic said in a TV interview that “I’m going to be very sensitive” to what the market is doing, as he weighs the prospect of further short-term interest rate hikes. Bostic was interviewed at the Kansas City Fed’s annual research conference in Jackson Hole, WY.
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