Anticipating Declining Rates
CMT Association, Inc.
Advancing the discipline of technical analysis for nearly 50 years
1/?Short Rates
Interest rates have come a long way and in a relatively short period of time. Currently and for much of this year, the federal funds rate exceeded the 2-year treasury yield. The market will interpret this as the Federal Reserve is done hiking and will soon cut or decrease rates.
To couple this signal, the above chart highlights the 12-month rate of change of the 2yr treasury yield. Following an interest rate hiking cycle, a negative rate of change has historically preceded a further decline in rates.
2/ Yield Curve
The yield curve is still inverted. The 2-year treasury yield is higher than the 10-year treasury yield. However, we’ve seen significant steepening of the curve by way of long yields rising faster than short yields. A trader can take advantage of this scenario by going long short-term bonds and selling long-term bonds. What does a steepening yield curve mean for your portfolio?
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