Interest rates are usually pretty boring to follow, but their recent contours have some experts taking notice. After 4 Fed rate hikes in 2018, the Fed seems to be signaling a wait & see approach from here on out. Short rates are higher now than they were a year ago, but long rates are a tad lower than they were. In some cases, the curve is inverted where longer term rates are lower than shorter term rates, such as the 3 year rate (2.54%) vs the 2 year rate (2.55%).
Short term rates are higher than they were a year ago through the 5 year, but are lower than they were a year ago from the 7 year through the 30 year rate. With the 30 year yielding 3.13% vs. the 3 year yielding 2.54%, you are being paid very little – 59 basis points – to take 27 added years of risk. The curve seems to be saying that there may be a short term transitional issue, but long term, there are no worries. That the long end of the curve is so low relative to the 2018 rate hikes and the unwinding of quantitative easing is surprising. It may be pointing to low inflationary expectations coupled with strong long term growth expectations.