The DAX index curve is displayed inside the Frankfurt Stock Exchange in Frankfurt, Germany (Photographer: Krisztian Bocsi/Bloomberg)

Yield Curve Flattens Anew as Strong Data Bolsters Fed Rate Hikes

(Bloomberg) -- The U.S. yield curve is back in flattening mode after a slew of economic data Friday supported the Federal Reserve’s plan to keep tightening monetary policy.

The spread between 5- and 30-year Treasury yields narrowed to as little as 32.3 basis points, leaving the curve poised to flatten for a third-straight week. The gap between 2 and 10 year yields briefly dropped to less than 48 basis points.

U.S. gross domestic product rose at a 2.3 percent annualized rate in the first quarter, beating the 2 percent median forecast of economists surveyed by Bloomberg. It climbed 2.9 percent in the prior quarter. Inflation was also on the rebound in the first three months of 2018, with the core personal consumption expenditures index advancing at a 2.5 percent annualized rate, a pace unseen since 2011.

Bond traders are pricing in more than two additional Fed rate hikes by the end of this year, and have baked in almost four by the end of 2019, fed funds futures data show.

Of course, there’s much more in the week ahead, including the Treasury’s announcement of funding plans and a Fed rate decision, that could determine the yield curve’s shape and twists. But for now, the latest readings largely confirm the U.S. central bank is still on track.

©2018 Bloomberg L.P.

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