The yield curve has steepened over the last week and a half, but the longer term trend continues to point toward a flatter curve. Rising rates have been accompanied recently by a steeper curve, as short term rates have been less volatile. The yield range we have settled into during the second half of QE2 has resulted in a yield curve that has been bouncing around between 260 and 290 basis points.

However the Fed decides to unwind its unprecedented control the over rates (both long and short) will determine the shape of the curve going forward. I wrote about this last month, and not much has changed since then.

Strong auctions this week and a 3.8% rally in the dollar has helped keep rates low despite the fact the Treasury market is set to lose its biggest buyer next month. The minutes from the most recent FOMC meeting will be scheduled next Thursday and the market will be looking for more detail about the discussions leading up to the unanimous decision to keep policy unchanged despite public comments from multiple FOMC members hinting that they may do differently.

Have a great weekend.

Cliff J. Reynolds Jr., Investment Analyst