Short Yields Overtake Long

Optimism on Tuesday that the Federal Reserve Board will win the war against inflation caused yields on some longer-term Treasury securities to move lower than the yields on securities with shorter maturities.

The yield on the Treasury’s five-year note closed at 7.83%, compared to 7.82% for the Treasury’s 10-year issue. Such an inversion last occurred in September, 1989, said Hugh Johnson, chief investment officer at First Albany Corp.

This partial “inverted yield curve” indicates that “investors believe the Fed will be successful in slowing the economy and controlling inflation,” Johnson said.

Bond investors have driven up shorter-term rates in lock step with the Fed as it has moved to push up short-term rates, saying it was doing so to slow the economy and reduce the risk of inflation. Expectations of a low rate of inflation have resulted in longer-term rates not rising as fast.