Information received since the Federal Open Market Committee met in May indicates that the labor market has continued to strengthen and that economic activity has been rising moderately so far this year.
The 10-year-2-year yield spread has more than reversed all of its gains since the U.S. election, while regional banks have held up better. This divergence is unlikely to hold for long: in our view, either the yield curve will start steepening again, or regional banking stocks will drop sharply to "catch down" with the recent drop in interest rates.
The Fed's expected plans for rate increases may be too fast for an economy that has shown recent signs of weakness, St. Louis Federal Reserve President James Bullard said on Friday, sketching out the case for a continued go-slow approach.
U.S. mortgage rates fell in step with bond yields in the wake of weaker-than-expected domestic economic data and as investors scaled back expectations about the number of interest rate increases by the Federal Reserve in 2017.