Debt Market Goes Off Script --- Narrowing Gap Between Short- and Long-Term Treasury Yields Signals Worry
The crosscurrents roiling the bond market intensified Thursday, as the gap between short- and long-term U.S. Treasury yields narrowed in the latest sign of uncertainty over the pace of U.S. growth.</br></br>Yields on short-term U.S. Treasury debt maturing in two to five years hit the highest level since 2011, reflecting an investor scramble to place bets on an expected Federal Reserve rate increase as soon as next spring. Yields rise when prices fall.</br></br>The selloff in short-term government debt extended a pullback that began following Wednesday's Federal Reserve decision to end its bond purchases later this year.</br></br>At the same time, yields on government debt maturing in 10 or more years have risen only modestly this week and remain well below their levels at the start of 2014, a year that many analysts forecast would include rising long-term interest rates and falling bond prices. The 10-year U.S. Treasury note was 8/32 lower, yielding 2.629%. That is the highest closing level since July 3 but compares with 3% at the end of 2013.</br></br>The softness of longer-term yields highlights concerns shared by many analysts and policy makers about the uneven growth of the U.S. economy and falling expectations for inflation. Investors broadly expect the Fed to raise the fed funds rate next year for the first time since 2006. But many analysts say that even a small uptick in rates could slow the economy and send already-low inflation further below the Fed's target.