403(b) Curriculum Library

Chart of the Month: U.S. Yield Curve Steepens to Widest Level Since 2017

Source: Federal Reserve Board of St. Louis

Market Observations

The beginning of 2021 has ushered in some notable moves in interest rates. In less than two weeks, longer maturity Treasuries have jumped over 20 basis points, while shorter maturity bond yields have remained anchored by the Fed’s zero interest rate policy. Financial markets refer to this as a steepening in the yield curve, with the yield spread between 2-year and 10-year Treasuries climbing above the 100 basis point level for the first time since 2017. The sharp rise in longer maturity bonds has been driven by market speculation that the new Biden administration will push for significantly more stimulus now that the Democrats have regained control of the Senate, after the Georgia run-off elections. The prospect of more stimulus could lead to a more robust recovery, particularly once the vaccine is more widely distributed, a greater amount of Treasury supply to pay for the stimulus, and higher inflation expectations. The move has also been fueled by Fed chatter of a potential tapering of its asset purchases as early as the end of this year. While the sharp rise in yields is concerning, particularly if the recent trend continues, the Fed has made it clear that they have no inclination to moderate their asset purchases for now.

Note: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice. Opinions expressed are those of the author, and do not necessarily represent the opinions of Cammack Retirement Group.

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