Corporate Finance

Narrowing Yield Gap Signals Worries Over Fed, Growth

Summary: The gap between yields on shorter- and longer-term Treasurys narrowed at months end, reflecting the tension between investors expectations that interest rates will climb and their concerns about the prospects for longer-term growth. Yields on longer-term Treasurys, which tend to fall when investors expect cooling economic growth, have retreated since approaching their 2021 highs earlier in October. Yields on shorter-term Treasurys, meanwhile, have continued to rise. The yield on the two-year Treasury, which tends to climb when investors expect rates to rise, settled at new yearly highs throughout the past week.

Questions:

1. According to the article, why have yields on longer-term Treasury bonds declined recently?
2. According to the article, what factors have driven the increase in short-term Treasury bills recently?
3. What do trading in CPI inflation swaps indicate about investors' inflation expectations?
4. What do federal funds futures indicate about investors' expectations for interest rate increases in the coming year?