The 10yr/2yr yield curve has made a higher high to the spring high after making a secondary extreme inversion in July. Our plan is that the secondary inversion was a prelude to a new steepener, which will alter the macro in potentially profound ways (inflationary, deflationary or likely a combination of both at different times) in the months/years ahead.
It is no surprise that a significant down leg in the current market correction came since mid-September, when the curve began its spike upward to tick the higher high. I think there is a good chance that the spike will settle down, possibly with nominal yields pulling back, allowing disinflationary Goldilocks to reenter the picture for a bit. This comes with markets oversold and seeking to find support.
I believe a pullback in the yield curve, if/when it comes, could come with a relief bounce/rally in the broad markets. But the trend is set and it is up, as in steepening. The curve is still inverted, but by much less so than at the dual lows in March and July. After any Goldilocks market bouncing – if applicable – I am leaning toward a deflationary curve steepener that would one day morph inflationary if/when fiscal and/or monetary policymakers start to panic.
Just an FYI snapshot of the higher high we’ve been anticipating and a few projections based off of that.
