The Federal Reserve, along with market participants, are investigating the 120 basis point discrepancy between the Fed funds and 10-year yields, suggesting that a hike to a range of 5.25-5.50% might not be excessively restrictive. This review comes amid concerns about inflation expectations, term premium, and deficit anxieties, on Thursday.
Ed Bradford, a US bond trader, underscored that Quantitative Easing (QE) purchases had mitigated duration risk. The impact of the QE era, which spanned from 2007 to 2022 and during which the Fed acquired a substantial portion of outstanding Treasury debt, is currently under examination.
The issue of rising 10-year rates was addressed by Minneapolis Fed President Neel Kashkari earlier this week. The potential artificial suppression of long-end yields during the QE era has become a significant focus, prompting questions about the future cost of US debt and its potential implications.
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