Yield Curve Status & Implication

The 10-2yr yield curve continues to be elevated this morning. Its recent history is of an inversion that the media touted heavily as some sort of Armageddon warning late last summer, the predictable rebound out of that, and with the coming of the COVID-19 crisis, a new steepening. It then consolidated and recently broke consolidation. From CNBC w/ my markups.

yield curveyield curve

A steepening yield curve can come under pains of inflation or deflation, depending on the direction of nominal yields. If long-term yields are rising faster than short-term yields inflation is indicated. If long-term yields are dropping slower than short-term yields a liquidity contraction and/or deflation is indicated.

From the vast library at Yardeni.com, comes this cool view of curves by various maturities. You can see how the steepeners have attended economic recessions.

yield curves

Obviously a recession has started but you might recall that we were managing a new potential steepener and recession/inflation indication since well before the Coronavirus reared its ugly head.

Okay, never resisting an urge to be silly…


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