Chart of the week: Long rates relatively anchored


  • The implied probability that the FOMC will raise interest rates at its March meeting rose from an already-high 90% last week to 100% this week.1 The movement came after Fed Chair Janet Yellen clearly laid the groundwork for a March hike last Friday and as February employment data came in stronger than expected this week.2,3
  • Treasury rates climbed through most of the week, with the benchmark 10-year Treasury note returning to its December 2016 high and briefly crossing the 2.60% mark once again.4
  • As we noted last week, however, there continues to be a notable dynamic taking place within the rates markets. Specifically, investors are pricing in higher growth and inflation expectations in the short term, but still do not appear to expect faster economic growth or significantly higher inflation to take hold over a longer period of time.
  • The chart highlights this phenomenon. Specifically, it shows that the yield differential between 5-year and 30-year Treasury notes has generally been narrowing since its peak in November 2010. In the current cycle, this is because yields on 5-year Treasury notes have risen much faster than those on 30-year Treasury bonds.5


1 Bloomberg, based on CME data.
2 U.S. Department of Labor, http://bit.ly/2iYbHWM
3 U.S. Federal Reserve, http://bit.ly/2l4p216.
4 Federal Reserve Bank of St. Louis, http://bit.ly/29ecBfp
5 Bloomberg, based on the yield differential between 5-year Treasury notes and 30-year Treasury bonds.


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