TREASURY YIELDS AND THE FED FUNDS RATE
This chart shows the effective federal funds rate in comparison to the 30 year and 3 month yield over the past five years. There are 5 interesting times to look at:
1. Late 2018 long term yields began to peak right before the fed stopped their hiking cycle. Yield curve began to flatten.
2. They then stayed put for about 6 months with the 3MY hovering right around the EFFR. Suddenly, the 3 month yield dips below the fed rate quickly - and they begin dropping their benchmark rate again.
3. Early 2020 the panic of the COVID-19 pandemic caused rates to nose dive and the fed to slash their rate all the way to 0% very quickly.
4. Fed did not raise rates for two years. In early 2022 they began to hike for the first time since 2018. This also coincides with the beginning of the Ukraine conflict.
5. Half a year of steady rate hikes makes it so the EFFR finally passes it's 2018 peak in mid 2022. The 30Y and 30M invert fairly soon after while the fed funds rate overtakes the 30Y yield.
Feel free to discuss what you think of these relations and what your predictions are for the future. In my opinion, the more the yield curve inverts the more problems there will be in the financial system. Eventually, term risk will not outweigh the high short-term yields especially once the benchmark rate gets over the inflation rate. I see the fed doing what they are best ate - acting too late.
1. Late 2018 long term yields began to peak right before the fed stopped their hiking cycle. Yield curve began to flatten.
2. They then stayed put for about 6 months with the 3MY hovering right around the EFFR. Suddenly, the 3 month yield dips below the fed rate quickly - and they begin dropping their benchmark rate again.
3. Early 2020 the panic of the COVID-19 pandemic caused rates to nose dive and the fed to slash their rate all the way to 0% very quickly.
4. Fed did not raise rates for two years. In early 2022 they began to hike for the first time since 2018. This also coincides with the beginning of the Ukraine conflict.
5. Half a year of steady rate hikes makes it so the EFFR finally passes it's 2018 peak in mid 2022. The 30Y and 30M invert fairly soon after while the fed funds rate overtakes the 30Y yield.
Feel free to discuss what you think of these relations and what your predictions are for the future. In my opinion, the more the yield curve inverts the more problems there will be in the financial system. Eventually, term risk will not outweigh the high short-term yields especially once the benchmark rate gets over the inflation rate. I see the fed doing what they are best ate - acting too late.
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