The yield curve has normalised based on data from Bloomberg. As at Sept 19, the 10-year US Treasury Yield was at 3.7% and the 2-year US Treasury Yield was at 3.5876%. On Sept 6, the 10-year US Treasury Yield which was 3.71% moved above the 2-year US Treasury Yield which was at 3.65%. This is the first time the yield curve has normalised since July 5, 2022. On July 6, 2022, the 2-year US Treasury Yield which was then at 2.82% moved above the 10-year US Treasury Yield at 2.81%.
The yield curve is important because an inverted yield curve is an indication of a recession. This time round, the economy has not - to-date - gone into a recession. The normalisation of the yield curve is indicative of normal economic conditions. As to whether a recession has been averted completely or contained, that remains to be seen.
Dot plot indicates FFR of 4.4% this year
A second upshot of the Federal Open Market Committee meeting on Sept 18, is the dot plot of the 19 FOMC members (of which seven are Fed governors). The dot plot points to another half point decline by the end of this year. The Fed has two FOMC meetings left this year, on Nov 6-7, and Dec 17-18. The dot plot of Sept 18 indicates that the Federal Funds Rate is likely to end the year at 4.4%, declining to 3.4% in 2025. In 2026, rates are expected to fall to 2.9%.
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Dot plot implication
If rates continue to trend lower, interest-sensitive instruments such as REITs, bonds and hybrids are likely to move progressively higher.
