Bond investors are increasingly betting on a continued steepening of the yield curve, with the 2s10s spread nearing a three-year high. This trend reflects expectations of future economic growth and inflation, as short-term yields decrease relative to long-term yields. The spread has widened to approximately 37 basis points, supported by real money investors and non-US interest in steepener trades. Sales in long-end bonds, such as 20s and 30s, have also contributed to this widening, indicating a preference for profiting from expected policy shifts and economic outlooks.
The upcoming Federal Open Market Committee (FOMC) meeting is adding to the market dynamics, as investors anticipate a potential pause in rate hikes. This expectation is driven by a strong labor market and inflation not yet reaching the Fed's 2% target, which could lead to further steepening of the curve. With a light data calendar in the US, the focus remains on the FOMC's decisions and their implications for future monetary policy.
The iShares 20+ Year Treasury Bond ETF (TLT), which focuses on long-term US Treasury bonds, is trading at $86.99 as of 10:47 on January 24, slightly up from its last close of $86.83. The ETF's performance is closely tied to movements in long-term yields, which are influenced by the ongoing curve steepening and investor expectations surrounding the Federal Reserve's policy actions.