Thought Leadership

Market Review and Outlook 1st Quarter 2006

April 21, 2006

The first quarter of 2006 ended with an exclamation point as rates rose sharply on longer maturity bonds and the yield curve inversion that began in January abruptly ended.

Since the Fed began to tighten in 2004, the yield curve flattened as short rates increased far more than longer-dated rates – a very typical response.  The public press and market journals made much of Greenspan’s “conundrum”, whereby longer rates fell as short rates were being pushed upward.  Indeed, the yield curve inverted, however slightly and briefly, in the quarter that just passed.  But that no longer is the case as the curve then flattened and now slopes modestly upward.