Concerns about slowing USA growth have accelerated the flattening of the yield curve, a phenomenon in which longer-dated debt yields fall faster than their shorter-dated counterparts. Stock and bond markets will be closed on Wednesday.
Other forces may be at work that would not necessarily change the Fed's underlying plans, such as a recent drop in oil prices that could hold down the interest demanded by investors by lowering expected inflation.
The longest-duration Treasury bond (meaning fixed-interest debt backed by the US government) is 30 years.
"I do continue to expect that further gradual increases in interest rates will best foster a sustained economic expansion", Williams said at the New York Fed. It's a sign that investors are unmoved by a potential slowdown in the Federal Reserve's rate hiking program.
It added, "We would caution against reading too much into the inversion".
Yesterday, a part of the yield curve inverted.
The theory may get a test soon.
"It's a sloppy predictor because at some point after yield curve inversion you could get a recession that could be one year, two year, three years", said Nicholas Colas, co-founder at DataTrek Research in NY.
Bianco research noted today "There has not been one instance where the 2-year 5-year spread inverts and the 3-month 10-year spread didn't".
The greenback has enjoyed months of unrivaled performance against its peers but that could be undermined by growing concern about slowing US growth.
USA two-year Treasury yields rose above three-year Treasury yields on Tuesday for the first time in more than a decade as traders piled on bets the Fed might be close to ending its rate-hike campaign.
Inversion does not imply in and of itself the Fed will not hike.
Williams, a permanent voter on policy and considered among the top economists at the central bank, said in September an inversion would not be "worrisome" or a "deciding factor" in setting policy.
Some business sectors like auto and housing are flagging due partly to rising interest rates, while debt-laden companies have raised concerns whether they could keep up with their debt payments as borrowing costs are rising.
But markets are doubtful.
While Fed officials have begun pointing to "headwinds" from slowing global growth and other risks, it won't be clear how much this has changed their outlook until they issue fresh economic projections after the December 18-19 policy meeting.
Some traders said the dramatic curve flattening may be overdone and may revert if the government's November payrolls report out on Friday were to show solid jobs and wage growth. If the spread turns negative (meaning shorter-term yields are higher than longer maturity debt), the curve is inverted...