U.S. Outlook: The mystery of the steepening yield curve

Posted By Scott Anderson In Economic Outlook | No Comments

The sharp steepening of the U.S.Treasury yield curve since the beginning of September deserves some sleuthing.

Graph showing recent steep rise in yield curve [1]This breaks a strong and persistent downtrend in the spread (i.e., a flattening of the yield curve) that has been underway since July of 2015.

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.
Click here to read my full report. [2]

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URL to article: https://changematters.bankofthewest.com/2016/09/16/u-s-outlook-mystery-steepening-yield-curve/

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[1] Image: http://blog.bankofthewest.com/wp-content/uploads/2016/09/graph_yieldcurve_091616.jpg

[2] Click here to read my full report.: http://blog.bankofthewest.com/wp-content/uploads/2016/09/BankoftheWest_USOutlook_09_16_16.pdf

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