Has the 10-Year Treasury Yield Hit a Ceiling?

After next week, however, it’s a guessing game.

Currently, the CME Group’s FedWatch Tool is calculating a 80.1 percent chance the Federal Reserve will hike rates by another 25 basis points. Come March 2019, the algorithm is much more uncertain with a 54.4 percent change of an additional rate hike of 25 to 50 basis points.

The capital markets could be fueling an increasing dovishness by the central bank with a confluence of events stemming from the possibility of an inverted yield curve and trade wars could muddy the once-clear path to rate hikes during the historic bull run seen in U.S. equities. The former, of course, being the one most reverberated especially in the bond markets–the appearance of an inverted yield curve is often associated with a forthcoming recession.

“Once the Fed pauses we will already have an inverted yield curve between two and 10 years, and a consequence of that in our view is U.S. banks will start tightening their lending. The impact of this normally is the end of the cycle,” said Mark Holman, chief executive and fund manager at TwentyFour Asset Management.

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