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Data: Tradeweb; Chart: Axios Visuals

Unusual dynamics in the bond market are showing that investors are prepping for rate hikes — and some think that’s a positive signal for the long-term economy.

Driving the news: The yield curve got flatter this week.

  • In other words, yields on shorter-term Treasuries went up, while longer-term Treasuries went down — and the spread between the two got smaller.

Why it matters: Short-term rates moving up show that investors think the current bout of inflation may ultimately pull forward a rate liftoff by the Federal Reserve to the middle or end of next year. Compare that to the beginning of this year, when a rate hike wasn't expected until 2023.

What they're saying: “Pricing in the Fed rate hikes at the front end of the curve is really boosting confidence at the back end of the curve,” says Robert Tipp, chief investment strategist at PGIM Fixed Income. That’s because the notion that the Fed may be willing to spring into action to keep a lid on runaway inflation is reassuring over the longer run, he says.

  • “I think the long yields are telling us that the bond market isn’t overly concerned about the economy getting to a level of excess, or an economy in which runaway inflation is a huge problem,” Invesco’s Levitt says.

State of play: Fed governors, in speeches and in their "dot plot," have suggested they're open to the idea of a rate hike next year.

What we're watching: All eyes will be on Fed chair Jerome Powell at next week's press conference for hints on the central bank's evolving views on rate hikes — as well as its upcoming taper of emergency bond purchases.

Go deeper

Dec 1, 2021 - Politics & Policy

Scoop: GOP warns Biden about Fed pick

Richard Cordray is seen during his 2018 Ohio gubernatorial bid. Photo: Jeff Swensen/Getty Images

Key Republicans are warning President Biden not to nominate Richard Cordray, a progressive and former director of the Consumer Financial Protection Bureau, to be the top banking regulator on the Federal Reserve.

Driving the news: Sen. Pat Toomey (R-Pa.) is indicating the GOP will use a potential Cordray nomination to re-litigate his tenure at the CFBP, an agency devised by Sen. Elizabeth Warren (D-Mass.) and fiercely opposed by most Republicans.

Updated 4 mins ago - Politics & Policy

Omicron dashboard

Illustration: Shoshana Gordon/Axios

  1. Health: Coronavirus variant surveillance varies widely by state — Omicron cases confirmed in 5 U.S. states America probably won't lead the effort to understand Omicron.
  2. Vaccines: Omicron adds urgency to vaccinating world — Omicron fuels the case for COVID boosters — Moderna loses patent battles tied to COVID vaccine — Pfizer could have vaccine data for children under five by end of 2021, CEO says.
  3. Politics: Nevada to impose insurance surcharge on unvaccinated state workers — New Jersey GOP lawmakers defy statehouse COVID policy — Oklahoma sues Biden administration over Pentagon vaccine mandate — Omicron travel bans are sign of what's to come.
  4. World: WHO: Delta health measures help fight Omicron — COVID cases surge in South Africa in sign Omicron wave is coming — Germany approves new restrictions for unvaccinated people.
  5. Variant tracker: Where different strains are spreading.
Updated 5 hours ago - Politics & Policy

Prosecutors charge parents of Michigan school shooting suspect

Photo: Scott Olson/Getty Images

The parents of a 15-year-old accused of killing four students and wounding seven other people at a Michigan high school have been charged with four counts of involuntary manslaughter, according to court documents.

The latest: Lawyers for James and Jennifer Crumbley told the Detroit News they are "returning to the area to be arraigned," after law enforcement officials announced a search for the Crumbleys had been initiated.