Bond markets fighting the Fed
The Federal Reserve has indicated numerous times throughout the year that they feel the economy is stable enough to support an increase in interest rates. In anticipation of this increase, with some speculation it could happen as early as September, short-term Treasury yields have started moving higher. However, yields on longer-term debt, such as the 10-year and 30-year Treasury, have continued to fall. Some argue this is a sign that investors, both domestic and foreign, are more skeptical than the Federal Reserve is regarding the health of the U.S. economy. This skepticism has led to the smallest spread between two- and 10-year notes at their slimmest level since April. Therefore, who is right – The Federal Reserve or the bond market? As we move closer to September, and the highly anticipated rate increase, we will continue to monitor where yields are in relation to each other as we wait to whether the bond markets know something the Federal Reserve doesn’t.