The yield spread collapses to lowest since 2007.
Prices of US Treasury securities fell across the spectrum on Monday, and yields rose. From the two-year yield on down, yields set new nine-year highs.
This sell-off – and the accompanying surge in yields – has occurred for months without downdraft in stocks and without a slowdown in economic growth. It’s a dreamy scenario where the Fed’s tightening has no negative impact on the economy. But the Treasury market at the longer end smells a rat.
Not for this year. But for later.
On top of it there comes a big bout of Fed uncertainty. Janet Yellen, who will be replaced next year by Jerome Powell as Fed Chair, announced today that she would also vacate her slot as governor on the Federal Reserve Board – a job she could have hung on to until 2024 – thereby making room for a fifth Trump appointee to the powerful Board of Governors. In early October Trump nominated and the Senate approved Randal Quarles as a member of the Board. Leaves four slots to fill on the Board of seven members. And no one knows what the Fed will look like next year.
This post was published at Wolf Street by Wolf Richter ‘ Nov 20, 2017.