Wednesday, December 14, 2016

"Yield Curve Likely to Flatten Due to ‘Hawkish Hike’"

From Barron's Income Investing:
The immediate reaction after the Federal Reserve raised rates Wednesday was for Treasury rates to rise across the yield curve.

But as the market digests the news — which includes projections for three hikes next year when many investors expected the Fed to stay at two — investors should look for the yield curve to flatten, say strategists.

Thomas Byrne of Wealth Strategies & Management told Barron’s:
If the Fed is true to its three-hike forecast for 2017, the UST yield curve should flatten. This is because the short end is not priced for three moves and Fed tightening is anti-inflationary. This should limit and, eventually, halt the rise of long-term UST yields.
Torsten Slok of Deutsche Bank Securities made much the same point to clients....