The steepening side has more merit starting January 2. In this conversation with Real Vision's Ed Harrison, he says that the result will be a steepening yield curve and potentially "generational" investment opportunities due to the economic dislocations. Key Points. The steepening yield curve extends the sharp turnaround in the prior safe-haven trade in August that sent the curve into an inversion and fueled fears of an impending recession. The first chart is the monthly 2/10 yield spread from St. Louis Fed with highlighted recessions. Most of the (strong) monthly trends are still intact. A change in the yield curve where the spread between the yield on a long-term and short-term Treasury has increased. To understand why, it’s important to know what drives the shape of the yield curve. The change has occurred as longer-term Treasuries lose value, lifting their yields. This means that the yield of a 10-year bond is essentially the same as that of a 30-year bond. Ride the Yield Curve --> Like Static & Upward Sloping. Below are two charts with DeMark signals that have also been helpful at inflection points And similarly for the other 3. The yield curve has steepened a bit compared to where it was a week or even a month ago. A swift steepening of the U.S. 2-year/10-year yield curve after it inverted last week may have given investors hope that the United States can escape recession. While society is uniting, and mostly succeeding, to flatten the coronavirus curve, there's one curve that is steepening aggressively. Investors should consider the yield curve slope an indicator of bank performance. The steepening yield curve suggests that the Treasury market is betting that the claims filings will soon fade and the labor market’s recovery will strengthen. The last 3 recessions occured with a steepening yield curve. The US Treasury yield curve has steepened in recent weeks (long-end rates rising faster than short-end rates), but that might not mean what you think. A recent Wall Street Journal story stated that “A flattening of the Treasury yield curve in 2017 is a worrying sign for investors banking on resurgent U.S. inflation and growth.” The yield curve, which refers to the usually upward sloping line that plots the interest rates of U.S. government debt across different maturities, has been steepening for several weeks amid expectations of additional government stimulus that could help the … You want to see long-term rates go up relative to short-term rates. Some claim the yield curve is flattening, others say steepening. That is the Australian bond market yield curve. Buy & Hold --> Likes Static. Another widely followed curve spread, the yield difference between 3-month Treasury bills and 10-year Treasury notes, recently inverted and troughed at -25 basis points, which makes the likelihood of a near-term recession significant. 5. That is what financials need is a steepening yield curve. Likes Decrease in Curvature. Expectations for a steepening yield curve typically requires a bullet strategy focused on intermediate-term rates. We think that long-term U.S. Treasury rates will drive changes in the yield curve because short-term yields are anchored by the near-zero federal funds rate. A yield curve is a line that interest rates of bonds having equal credit quality but differing maturity dates. A "bull steepening trade" is a combination of trades that makes money if interest rates go down AND the slope increases. Assuming the steepening of the US yield curve remains intact, USD/JPY may threaten its 100-day moving average at 105.87. As a result, we anticipate that 30‑year yields will increase, so we have positioned the fund for modestly higher long‑term rates and a longer‑run continuation of the yield curve steepening that began in May. Conversely, a situation in which the yield curve is flat is called flattener. However, the bigger story is what the yield curve steepening means. Profit-taking this morning has seen USD/JPY retreat to … “In the short term, banks can outperform on the yield curve steepening that should accompany any further post-pandemic return-to-normal trade,” … Steepener means the widening of yield curve. They should probably take a breath. Next, don’t forget there was a virtual stampede of money into bonds over the summer as investors worried about President Trump’s trade war against China . But the spread has also been trending higher, in fits and starts, for a year-and-a-half and is now at a three-year high. The US 10s/2s yield curve inverted as early as August 2019, and yields fell steadily from early January 2020, but the US equity market didn’t peak until mid-February 2020. ... That the US yield curve is steepening … There are two types of yield curve risk: steepening and flattening. A flattening of the yield curve usually occurs when there is a transition between the normal yield curve and the inverted yield curve. Also known as a steepening yield curve, this type of plot occurs when there is a relatively large difference between short and mid-term bonds. With Fed on hold, short rates should stay anchored near zero. The US Treasury yield curve is steepening, with the longer duration yields tracking the inflation expectations higher. With US treasury yields on a tear, one might think the curve is steepening. If we are correct, the only recession warning investors will get could be the aforementioned curve steepening. bond update with us 2/10 yield curve focus. Exhibit A is the gradual but persistent steepening in the Treasury yield curve over the past year-plus. The yield curve has been steepening for the last month, and yesterday hit its highest level since July 30. Laddered --> Good for liquidity management (duh, it has the most cash flows) Bullet --> Likes Steepening. Exhibit 5 shows how the 5-Year and 10-Year Note futures You may have read news articles or heard somewhere that "the yield curve is flattening," but what does that mean? The current 10-year/2-year spread, at +81 basis points (Dec. 15), is still unusually low by historical standards. Steepening of the yield curve. The spread between the 10- and two-year yields has risen to 96 basis points, the highest level since July 17, 2017. Filmed July 1, 2019 in New York. Federal Reserve policy has also played a critical role in the steepening of the yield curve, strategists said. Suppose you bought the spread only to see 5-year and 10-year cash yields drop 10 bps. Rosenberg argues that it represents one of Blackrock's pre-election themes, i.e. The long-term chart of the 10-2 yield curve, in combination with the S&P 500, is something to keep an eye on, as I points out a few previous occasions of yield curve steepening that led to a decline in the S&P 500. Many fear a yield curve inversion is signaling a recession, but strategists say a quick re-steepening would be scarier since the anticipated downturn could then be close at hand. You lose some gain in the short rates, but protect against a greater loss in the long rates; that is, the long loss is greater because duration for long-maturity securities is greater. A steepening yield curve has preceded the three most recent recessions. True yield curve spread filters out directional effects (i.e., changes due to parellel shifts in the yield curve) and responds only to changes in the slope of the yield curve (i.e., non-parallel shifts). Ok, now for some Yield Curve Strategies. 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