Lost in all the hoopla over the Federal Open Market Committee's minutes, which were released last week and have market watchers believing the Fed will be aggressive in combating inflation, is that the 2s/10s Treasury curve could see a brief resteepening after months of gradually grinding flatter. "Because of the minutes, portfolio mangers are not seeing as much inflation as they talked themselves into seeing. The 2s/10s curve flattening trade could get some relief," said Margo Cook, head of institutional fixed income at the Bank of New York. She estimates the yield curve could resteepen by five basis points over the next week due to the minutes. But her long-term view is the curve will continue to grind tighter to about 55bps by the end of the year because of the Federal Reserve's push to tighten interest rates. The 2s/10s curve was at 72bps on April 13.
The 2s/10s curve is particularly widely followed by market participants these days because many investors have adopted barbelled positions given expectations of a flatter curve.
