Yields on long-term sovereign debt continue to plummet around the globe this morning. Earlier today, the yield on the 10-year US Treasury dropped down to a 50+ year low of 1.31%, but it has since recovered a bit to 1.34%.
Besides the fact that the yield on the 10-year currently sits at historical lows, what makes current levels so amazing is that they are either right around or even below the level of interest rates that FOMC committee members were forecasting for the Fed Funds rate one year ago. The chart below is from the Fed’s Economic Projections package following its June 2015 meeting. As shown, all but three of the seventeen committee members were forecasting the Fed Funds rate to rise to between 1.25% and 1.50% in 2016, while the median forecast was above 1.5%. Had those projections actually been reached, we would be dealing with an inverted yield curve right about now.