The new non-inflationary curve steepener

10-2yr Yield Curve steepening, but not due to inflation

While the headlines continue to blare inflation 24/7, an indicator of the 2020-2021 inflation diverges the hysteria. Sure, the yield curve is doing what it did when it led the inflationary hysteria of today. It is steepening.

But the trick is to realize that a yield curve can steepen under either inflationary or deflationary pressure. At the moment I think it is very early in a new steepener that is currently a Goldilocks type thing (not too hot, not too cold) but could morph deflationary. When the curve is steepening and nominal yields are rising, it’s inflationary. When it is steepening with yields declining* as they are currently, it is deflationary or dis-inflationary. From cnbc.com

A secondary inversion (to the 2019 inversion) happened in April and if this is the next steepener as it appears to be it’ll either be under renewed inflationary pressure or, if the bounce in Treasury bonds turns to more than a bounce, deflationary pressure.

* The trend is still up in yields, down in bonds. But it is interesting that bonds have bounced as we’ve been noting right from below the Continuum’s ‘lower high’ to the 2018 high. Eh?

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