On Monday morning, the yield on the five-year Treasury note increased to 2.64% — higher than the yield on 30-year notes, which dropped to 2.60%. The"inversion," as it's known to investors, was short-lived, but the curve on the two notes remained flattened as of Monday afternoon, with the five-year yield sitting at 2.55% and the 30-year at 2.57%.
The flattening yield curves come after the Federal Reserve announced it would raise its interest rate target by a quarter of a percentage point, the first rate hike since 2018. Fed Chairman Jerome Powell has also signaled the central bank might be more aggressive in hiking rates at its forthcoming meetings in response to the country’s breakneck inflation.
Most investors now foresee a half-point hike in May, with the likelihood of the more aggressive rate hike occurring pegged at more than 74%, according to CME Group’s FedWatch tool, which calculates the probability using Fed fund futures contract prices. “This means monetary policy will remain loose until overheating begins — and cooling things off will require the Fed to increase interest rates much faster and further than it would if it started raising rates sooner,” Dudley said of the prospects for a “hard landing.”