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On the radar: St. Louis Fed’s Stress Index in October 25 week reflects expectations of a rate cut

The St. Louis Fed’s Financial Stress Index fell to -1.285 in the week ended October 25, its lowest since -1.310 in the September 13 week. Markets were persuaded the FOMC would provide another rate cut at the October 29-30 meeting, which it did. It remains to be seen in next week’s data if the signal that further rate actions were on hold will result in reversing the downward direction of the past three reports.

In the data for average Treasury yields for the week, the gap between the 3-month bill and 10-year note remained positive for a second week and widened to 15 basis points from 13 basis points. This was a little further distance from the 11 straight weeks of inversion just before that. The gap between the 2-year and 10-year notes — which receives more attention from Fed policymakers — widened further to 18 basis points and was positive for an eighth straight week. The yield curve is still flat relative to its normal readings, but it is showing more light between data points.

 

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