Oct 31, 2019

The Fed's Treasury bill purchase program helped steepen the yield curve

Dion Rabouin, author of Markets
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Data: St. Louis Federal Reserve; Chart: Naema Ahmed/Axios

The yield curve had steepened significantly this month, with yields on the 3-month and 1-month Treasury bills falling meaningfully below the 10-year note.

Why it matters: The Fed's $60 billion a month Treasury bill purchase program, announced as a "technical" salve to calm the $2 trillion U.S. repo market, looks to have provided some assistance in the steepening.

  • The spread between 3-month and 10-year yields widened by the most in five months on Oct. 11, the day the Fed announced it was beginning the T-bill buying program.
  • The curve had been inverted since May 22 but moved into positive territory on Oct. 11 and hasn't inverted since.

Of note: An inverted yield curve is a sign of an unhealthy economy and typically precedes a recession.

What to watch: Rick Rieder, BlackRock’s CIO of global fixed income, says the Fed is pushing all the right buttons.

  • The Fed "is absorbing massive amounts of Treasury issuance, is steepening the yield curve and is allowing banks and others to lend and create velocity to the economy."

The bottom line: Don't call it quantitative easing.

Go deeper: The Treasury yield curve has steepened for all the wrong reasons

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