U.S. treasuries dipped on Monday sending widely-watched part of U.S. yield curve to its first inversion in 16 years. The flattening of the curve comes as investors bet the Federal Reserve will tighten policy rapidly enough to risk a sustained slowdown in growth.
Short-term bond yield U.S fiver year climbed nine-basis points to 2.63%, rising above the 30-year bonds. Shorter matures bonds have been selling off faster than longer term bonds as investors expects Fed will raise interest rates faster this year compared to in the longer term. The spread between five- and 10-year Treasuries inverted earlier this month.
“Fed officials haven’t pushed back on aggressive market pricing yet, putting higher yields and flatter curves as the momentum play for now,” said Prashant Newnaha, an Asia-Pacific rates strategist at TD Securities in Singapore, as reported by Bloomberg.
Traders are betting the central bank will boost its benchmark by 200 basis points by year-end. Chairman Jerome Powell said last week the central bank was prepared to raise rates by 50 basis points in May if such a step was necessary to control price pressures.
Powell also pushed back against concern that an inverted yield curve would signal the economy is headed for a recessions, saying it made more sense to focus on the shorter end, where curves remain steep.
