It can be ugly when investor estimate changes direction. The bond market made than turn last week. Market interest rates charged higher as investors began the process of pricing higher inflation expectations into current rates. This change is reflected in a steepening of the yield curve. In the last month, the spread between the yield on the two-year treasury and the ten-year has widened from 49 basis points to 70 basis points. The entire term structure of rates has moved higher but the intermediate and long end has moved higher by a larger amount.

The inflation risks were highlighted last week by the Fed and the labor market report. The Fed did not change monetary policy but did change some language in their statement to open the door for more than three increases in managed rates this year. These changes were noting the Fed’s belief tight labor markets are…

ProBank Austin Advisor – February 05, 2018