Oct 31, 2019

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

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

Go deeper

Treasury selloff is more about the Fed than the trade deal

Photo: Alastair Pike/AFP/Getty Images

The U.S. bond market was closed on Monday to commemorate Veterans Day, pausing a massive selloff in U.S. Treasuries that has taken yields on the benchmark 10-year Treasury note to their highest level since the start of August.

Why it matters: The Treasury market has provided a more accurate reflection of U.S. economic data so far this year, and rising yields show safe-haven bonds are losing their appeal.

Go deeperArrowNov 12, 2019

The Federal Reserve's amazing pause

Illustration: Eniola Odetunde/Axios

Fed Chair Jerome Powell almost rocked the boat during the FOMC's October press conference on Wednesday after announcing a third straight cut to U.S. interest rates.

What happened: Powell initially said it would take a "material reassessment" in the outlook for the Fed to change its view that no further rate cuts were needed — but minutes later he reversed course, saying that holding rates at their current levels would be appropriate as long as the outlook stayed within the Fed’s expectations.

Go deeperArrowOct 31, 2019

The market got the rate cuts it wanted

Data: CME FedWatch Tool; Note: Data as of Nov. 13 at 5:44pm CT; Chart: Andrew Witherspoon/Axios

Fed chair Jerome Powell again laid out his rose-colored view of the U.S. economy on Wednesday, telling the congressional Joint Economic Committee that he sees the U.S. as “being in a good place." He reiterated that a "material reassessment" of the economic outlook would be required for the Fed to raise or cut interest rates any time soon.

Why it matters: Powell's testimony was the cherry on top of the good news sundae that has sent traders' appetite for risk soaring over the last two weeks, and priced out expectations for further U.S. interest rate cuts through the end of next year.

Go deeperArrowNov 14, 2019