U.S. Markets closed

Treasuries Curve Reaches Flattest Since 2007 on Steeper Fed Path

Liz McCormick
The U.S. Department of the Treasury stands in Washington, D.C., U.S., on Wednesday, Oct. 21, 2009. Treasury Secretary Timothy Geithner said the bank capital-purchase program in the $700 billion bailout will be allowed to expire later this year because parts of the economy and markets are stabilizing. Photographer: Andrew Harrer

The Treasury yield curve from 5 to 30 years flattened to levels last seen in August 2007 after Federal Reserve officials hiked rates and signaled a faster pace of tightening ahead.

The spread narrowed to as little as 24.4 basis points, falling below the previous low for 2018, touched in May. The gap between 2- and 10-year yields also slid to the smallest since 2007, touching 39.1 basis points.

The shape of the curve is important because investors and policy makers have been on guard for it to invert, a shift that has historically preceded recessions. Fed officials boosted their forecast to four total increases in 2018, from three in their March outlook. Their median projections for 2019 also rose.

“The bond market has the belief that, as the Fed continues to tighten, it’s going to lead to a slowing of the economy,” said Peter Boockvar, chief investment officer of Bleakley Financial Group.

The near-relentless curve flattening this year reversed fleetingly after the release of the minutes from last month’s meeting ,as policy makers signaled they were monitoring the shape of the curve. While a few said the curve had become “a less reliable signal” of future activity, several stressed the link between inversions and coming economic downturns.

With a decline in the gap between 2- and 10-year yields to below 40 basis points, traders will look to spreads of 25 basis points and 12 basis points as support levels, said Tom di Galoma, managing director of government trading and strategy at Seaport Global Holdings.

More from Bloomberg.com

Read Treasuries Curve Reaches Flattest Since 2007 on Steeper Fed Path on bloomberg.com