Yield Curve steepener in play?

The 10yr-2yr yield spread has taken out its previous short-term high

Thus, it’s certainly a candidate to begin the steepener that seems only a matter of (diminishing) time. Notice how it took out the previous high and also the July high. Here’s the link at CNBC where you can check the status any time you’d like (assuming you’ve got a little nerd in you).

10yr-2yr yield curve10yr-2yr yield curve

The yield curve is one of those indicators that the herds don’t tend to watch because a herd is too busy listening to the herd leader than to think for itself. A steepening yield curve – if that is beginning now – is a game changer… and likely not in a good way, even if it starts out as an inflationary one. *

* Yield curves can steepen under inflationary or deflationary pressure, depending on what nominal bond yields are doing.

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This Post Has 4 Comments

  1. MikeC

    Gary, can you explain this a bit more or point me to an old posting? This is the 2 year yield minus the 10 year yield?

    So going less negative means the 2 year is rising faster than the 10 year, which means…?

    Sorry, I am apparently one of the herd who always sees this, but doesn’t really understand it.

    1. Gary

      The flattening was a reflection of the 2yr yield strong relative to the 10yr. The inversion was the 2yr yield above the 10yr. A steepening can happen by both yields dropping (but the 2yr yield dropping [more] under market liquidity pressure) or both yields rising (but the 2yr rising less under inflationary pressure).

      But those are scary words. In the real world it’s all a process that takes time to play out. Hence, nerdy indicators to keep a view of the process. Resolution is what will make the news one day, but this is the stuff people should be watching ahead of time so that they don’t become part of the herd/cliff scenario.

  2. MikeC

    TYX closed at 3.483 (poor TLT!), above 3.45%, highest close since 2014. What is this signaling? I went back to your latest report and the Sept 1 update, and Aug 19th, and what I get is…. (I have left this out because I cannot post in protected and don’t want to give anything away). Help me understand.

    1. Gary

      It was discussed at the beginning of the ‘Indicators’ segment in #721. Unless this is a quick head fake we’re targeting the upper level per that discussion. It’s a measurement off of the yield’s bull pattern.

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