US government bonds are approaching major milestones as investors continue to sell the debt and faith in the global economic rebound holds, making riskier assets more appealing.
The outlook for at least two and possibly three more rate rises this year has lifted the yield on the more policy-sensitive two-year Treasury to the brink of 2.5 per cent, a line it has not touched since 2008, during the financial crisis. It is up by a further 1.3 basis points on Monday morning, to 2.4701 per cent.
The two-year yield started 2018 at just over 1.90 per cent, and was at 0.8660 per cent on the day Donald Trump was elected, bringing with him reflationary policies including the biggest tax cut package in a generation.
Benchmark 10-year US paper is yielding 2.9733 per cent, up another 2.2 basis points as investors sell it, taking the yield nearer 3 per cent and to its highest level since early 2017.
That leaves the difference between the two yields at low levels. Such a flat yield curve comes when investors do not demand a significant premium to lend money to the US government over a longer period, implying concern at the longer-term economic outlook.
That suggests the bond market is implying that the Fed will raise rates, and then regret the moves.
– Copyright The Financial Times Limited 2018
