Some Fed officials have downplayed any signals emanating from the bond market.
“We are seeing a demand for U.S. securities actually go up in ways that are going to flatten the yield curve significantly,” said Atlanta Fed President Raphael Bostic, after a speech in Alabama on Tuesday. “That is different from making a read on broader economic performance.”
St. Louis Fed President James Bullard, by contrast, said in Louisville, Kentucky, that further curve flattening “would in my view be a vote of no confidence in markets that we have the story right about what is going to happen to inflation going forward.”
The curve could invert as Treasury issues more bills -- a sector of the curve that has shrunk as a proportion of the outstanding market -- in the early stages of the Fed’s balance-sheet runoff, said Jim Vogel, a strategist at FTN Financial Capital Markets.
“If there were a message embedded in market thinking about rates, they would studiously ignore it on principle,” Vogel said. “Ultimately, economic growth is going to be more sensitive to Fed signaling at the short-end than the market’s reaction function at the long end.”
This article was provided by Bloomberg News.