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,
3 U.S. Federal Reserve,
4 Federal Reserve Bank of St. Louis,
5 Bloomberg, based on the yield differential between 5-year Treasury notes and 30-year Treasury bonds.

The Alternative Thinking Week in Review market commentary and any accompanying data (“Market Commentary”) is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The Market Commentary is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such Market Commentary. The Market Commentary should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the Market Commentary or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.