Treasury yield curve flattens

Following the recent Federal Open Market Committee meeting, 13 out of the 18 members forecast short-term interest rate increases in 2023, with most seeing two rate hikes. Some FOMC members predicted raising rates as early as next year. Based on a consensus analyst estimate, Wall Street expects one hike to happen in the first half of 2023.

Examining longer-term yields, analysts forecast a steady increase, anticipating the 2-year yield to increase to 0.95% by the third quarter 2023 from its current 0.23%. By then, the consensus estimate calls for the 10-year yield to reach 2.42% vs. the present 1.52%.

Treasury yields on maturities up to 5 years have increased this month. Simultaneously, longer-term yields have fallen. The 2- to 10-year Treasury spread has narrowed to 119 basis points from 146 basis points at the start of June.