Oil prices are up again this morning with the U.S. benchmark West Texas Intermediate ahead 0.21% to $72.23 a barrel as of noon New York time. International benchmark Brent has gained 1.02% to $82.03 a barrel.
But “the” story today, I’d argue, is the Treasury market on the day before the Federal Reserve is almost certain to raise interest rates by 25 basis points. (It takes 100 basis points to make up one percentage point,)
The 10-year Treasury was up again yesterday and the yield now stands solidly over the “magical” 3% threshold at 3.10%. The yield curve remains strikingly flat with the yield on the 2-year note at 2.84% and the yield on the 3-month Treasury bill at 2.17%.
Yes, that’s right, a bond buyer gets a whopping extra 93 basis points–0.93 percentage points–for lending the government money for 10 years instead of just 3 months.
The Federal Reserve directly controls only short-term rates so it will be very interesting to see how the market reacts at the long end of the Treasury market to any increase in short-term interest rates tomorrow.
And to any Fed guidance on expectations for inflation, the number of interest rate increases in 2019, and expectations at the Fed for a final neutral interest rate. Right now the longer run market projection for the Fed funds rate, currently at 2% and expected to go to 2.25% tomorrow, stands at 2.9%. There’s a good chance that the Fed will move the goal posts on that longer run expectation.
