US yield curve flattens by 8 basis points

• US yield curve flattened for the third straight day on Wednesday.
• Fed policymakers discussed yield curve control and retained record low rates.

The US yield curve, as represented by the spread between the US 10- and two-year yields, flattened for the third straight day on Wednesday, as Federal Reserve's (Fed) President Jerome Powell said the question remains open as to whether the central bank will use yield curve controls to curb the rise in the longer duration yields. 

The spread narrowed by eight basis points to 55 basis points on Wednesday, having declined by almost ten basis points over the previous two trading days. 

In his introductory remarks before Wednesday’s post-policy meeting press conference, Powell informed markets that policymakers had a full discussion about employing the yield curve controls. “Whether such an approach would usefully complement our main tools remains an open question,” Powell said while adding that the bank would continue to discuss the matter in upcoming meetings.

Powell's comments on the yield curve control likely reinforced expectations that the central bank is preparing to do so to cap the upside in yields and provide additional support to the economy. 

However, while one part of the curve narrowed, the other, as represented by the spread between the 30- and five-year yields, widened mostly to 1190 basis points, according to Reuters.