Interest Rate Watch
August 15, 2013
This steeper yield curve with an environment of modest growth and low inflation is very unusual. Typically, a steeper yield curve is associated with rising inflation expectations and/or rising expectations for stronger economic growth. Yet, the market does not reflect either of these expectations. Instead, the changes in the pace of expected Fed purchases of long dated Treasury instruments is taking place in the context of moderate growth and low inflation. Therefor, these rate increases are not reflective of the economy, but will instead be imposed on the economy by change in Treasury market dynamics as the Fed withdraws its purchases and other public (central bank) or private buyers need to step up to the plate.