Feb 4, 2021 - Economy

The bond market gets optimistic

U.S. yield curve steepens (chart)
Data: FactSet; Chart: Axios Visuals

The markets are more optimistic about growth and inflation than they have been in over four years.

Driving the news: That's the signal being sent by the U.S. Treasury bond yield curve, where 10-year notes now yield a full percentage point more than their one-year equivalents.

  • That might not seem like a lot, but in a world of zero interest rates, it's important. It's a sign the markets are betting that Fed policy will work in terms of creating inflation — something it has signally failed to do over the past decade.

By the numbers: The 10-year breakeven inflation rate — a measure of inflation expectations — has risen to 2.19%, its highest level since 2014.

  • The Fed has said that it wants to see inflation above 2% for some time before it starts raising interest rates.

The bottom line: Inflation is an important part of what the economy needs right now.

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