Treasury Action: curve steepeners have been the play
Treasury Action: curve steepeners have been the play for the past two weeks and could be maintained near term. Longer term rates really shot up today amid stronger than expected Chinese inflation data overnight and the uptick in U.S. PPI today, supported by a 2.5% jump in energy prices. The final straw were comments from Fed chair Yellen who postulated policymakers might want to be "more accommodative" when financial crises damaged the supply side of the economy, and went further to warn that "high pressure policy" may be needed for a full recovery. The long end has underperformed on the inflation threat, while the short end is little changed on the possibility that short term rates will remain lower for longer. The 2s-10s spread widened 5 bps today to 95.5 bps, and is out near 15 bps in two weeks. The 5s-30s gapped out 6 bps to 127.5 bps, and is over 10 bps wider versus early October. Tuesday's report on CPI could keep the steepening bias intact for now.