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Money and Financial Markets

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In June, long-term Treasury rates dropped markedly, more than 20 basis points in the case of the 10-year Treasury. This drop could reflect moderating inflation expectations: Both the 10-year to 3-month Treasury spread and the spread between the 10-year Treasury and the 10-year Treasury inflation-indexed security have dropped recently. The stock market’s poor performance may be another part of the story. As investors shift from stocks to bonds, bond prices rise and yields fall. The announcement of a delay in the 2-year Treasury note auction (formerly scheduled for June 26) seems to have driven yields down on the short end as well. As a result of greater concern over corporate governance and geopolitical tensions, major stock market indexes are now hovering near the levels reached just after September 11.

Suggested citation: "Money and Financial Markets," Federal Reserve Bank of Cleveland, Economic Trends, no. 02-07, pp. 05-07, 07.01.2002.

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