Key Takeaways
- Shorter-term US Treasury yields have fallen, while yields on longer-dated bonds could remain elevated, thanks to the threat of higher inflation and investor concerns surrounding the federal deficit.
- Known as a steepening yield curve, this trend began ahead of the Fed’s first interest rate cut this year, and is expected to continue as rates are trimmed further.
- A steeper curve means more opportunities to capture yield in longer-dated bonds, but it also comes with risks.
The landscape for bond investors is changing. Now that the Federal Reserve is cutting interest rates, strategists are expecting short-term Treasury bond yields to fall while yields on bonds with longer maturities stay high. In Wall Street lingo, that means the yield curve (a snapshot of the US Treasury market) is steepening.
The spread between the 10-year and two-year Treasury yields was 0.50 percentage points as of Friday, compared with 0.37 percentage…
