U.S. Outlook: The mystery of the steepening yield curve
The sharp steepening of the U.S.Treasury yield curve since the beginning of September deserves some sleuthing.
For more on what this could mean, see highlights of my report below, followed by a link to the full U.S. Outlook, delivered on Sept. 16.Key observations:
- Yield curve steepening historically has been driven primarily by signs, or expectations, of stronger growth or higher inflation.
- As of Thursday’s close, the Fed funds futures market was placing just an 18% probability of a September rate hike from the Fed.
- Bond investors in Japan and Europe have poured money into U.S. Treasury bonds to attain somewhat higher returns. Those foreign capital flows are likely slowing down now.
- Bond investors are wondering if central banks have run out of ideas and options.