Specialists at Bank of Tokyo-Mitsubishi UFJ Ltd claim that the Federal Reserve’s likely to loosen its monetary policy. Such assumption’s based on the butterfly spread that’s calculated by subtracting doubled 5-year Treasury yield it from 2- and 10-year rates.

Bank of Tokyo-Mitsubishi notes that the last time the spread got to its current negative level of 34 basis points was in December 2008 after Lehman Brothers’ collapse and, earlier, in 2001 after the Internet bubble burst. Negative figure shows that there are more bets that the Fed will reduce borrowing costs or hold interest rates near zero for longer.

If the butterfly spread gets gown below the mark reached after the collapse of hedge fund Long-Term Capital Management LP in 1998, it will come close to 1981 levels hit during postwar double-dip recession. Bank of Tokyo-Mitsubishi analysts note that even if the United States avoids recession scenario, its economic growth will be only just above 1% that will strengthen deflation risks.

According to the strategists, the 5-year yield that reflects the potential monetary policy switches lowered that means that the possibility of further easing is already processed and priced in be the market.

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