The Treasury yields fell substantially in July, especially at the long end of the curve. Moreover, current Fed fund future prices point to a more moderate pace of rate hikes, as the chart illustrates. It remains to be seen whether recent price movements represent an overreaction, especially in the event that labor supply constraints will ease later this year, leading to an increase in employment and higher wage costs.
In any case, the recent downward movement in yields has resulted in a flatter yield curve, which has now returned to its January 2021 level (see chart 2 in the Alternative Credit Letter).
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