Key Fed yield gauge points to rate cuts for first time since 2008


By Gregor Stuart Hunter
Bloomberg News
Wednesday, January 2, 2019

A market indicator watched by the Fed as one of the most accurate gauges of economic health is pricing in lower rates for the first time in more than a decade.

The little-known near-term forward spread, which reflects the difference between the forward rate implied by Treasury bills six quarters from now and the current three-month yield, fell to -0.0653 of a basis point today.

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It was the first time since March 2008 the gauge -- seen as a proxy for traders' outlook on Federal Reserve policy -- fell below zero.

Crossing the threshold indicates the market sees easier policy and recession in "the next several quarters," economists at the U.S. central bank wrote in a research paper dated July 2018. ...

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