The press release for this week's Federal Open Market committee (FOMC) meeting suggested that the FOMC "continues to anticipate that economic condtions are likely to warrent exceptionally low levels of the federal funds rate for an extended period of time, and yet also will complete its purchase of Treasuries by the end of October. This would suggest that the yield  curve will be biased towardds steepening as reduced Fed buying and continued Treasury issuance will raise interest rates-particularly given recent weakness in the dollar. Moreover, the FOMC sees "that economic activity has picked up" and this should reduce the flight - to- safety trade. Another factor favoring a steeper yield curve.

The outlook remains for an unchanged federal funds rate through mid 2010 and we believe the FOMC statement is consistent with that. In addition, we have a modest rise in the benchmark 10-year Treasury rate and, again, believe the FOMC's policy guidance is also consitent with that outlook.