While yield-curve inversions typically have preceded recessions, Fed policy makers and some bond market strategists have cautioned against drawing too much from the recent moves. Powell last week said he’s focused on Treasury yields just out to 18 months, which don’t show warning signs.
Others say that massive Fed buying of Treasuries over the past two years -- its holdings total about $5.8 trillion -- has distorted any signal from yield levels.
Meanwhile, Bank of America strategists recommended their clients keep betting on the curve flattening, expecting two-year yields will reach 3% by year-end, or 50 basis points above their 10-year yield forecast.
“The Fed is behind the curve and still rushing to catch up,” strategists including Mark Cabana wrote in a note Friday. “We believe the front end is likely to price in an even more aggressive Fed and would not be surprised to hear increased market speculation over 75bp rate hikes at a coming meeting.”
--With assistance from Ye Xie and William Selway.
This article was provided by Bloomberg News.