This June, concerns about inflation, together with a general belief that economic growth would continue to be strong, led bond traders to anticipate that the Fed would tighten policy relatively quickly. Because the funds rate was expected to rise at a comparatively rapid pace, longer-term yields were well above short-term rates; in other words, the term structure of interest rates sloped steeply upward.
Since June, however, inflation fears have receded, and some financial-market participants have become less optimistic about the economy’s near-term growth prospects.