(Corrects first paragraph to show that overnight rates are higher than for longer periods, not the reverse)
By Liz Hampton
DENVER, Oct 18 (Reuters) - Dallas Federal Reserve Bank President Robert Kaplan said on Friday that it “bothers” him that banks now must borrow from each other overnight at higher rates than they would for longer periods - a topsy turvy situation that he said could lead to tighter financial conditions.
The Fed targets the overnight bank-to-bank lending rate in a range of 1.75%-2.00%, and it has lately hovered around 1.85%. Meanwhile the yield on the benchmark 10-year U.S. Treasury note is 1.76%; the yield on a 5-year note is 1.57%.
“If you can’t borrow short and lend long ... it is my judgment ... that you’re eventually going to see a tightening of conditions,” Kaplan said at an energy conference in Denver, adding that he is “agnostic” about whether the Fed needs to lower interest rates again this year. (Reporting by Howard Schneider; Editing by Alex Richardson and Sandra Maler)