WASHINGTON–What to make of the yield curve has been much discussed in credit unions as to whether it’s a sure-fire signal of a recession to come or not the predictor it has been in the past.
The question remains front and center as the spread between the two-year Treasury yield and that of the 10-year note climbed to its highest level since November 2018, meaning the yield curve is steepening.
"The Fed is on hold, the economy is doing well, and trade tensions aren't increasing. In such a world, a steeper curve follows intuitively," Ian Lyngen, BMO's head of U.S. rates, told CNBC.
The benchmark 10-year yield has risen about 40 basis points since the beginning of October as investors fled safe-haven assets on easing trade tensions, according to the report.
“The yield curve, which flashed the biggest recession signal in more than 10 years and sent shock waves through the financial markets just a few months ago, is now signaling things are just fine,” CNBC said. “In fact, it's saying things are more than just fine, it's pointing to a faster economy ahead.”
Steepening Curve
The spread between the two-year Treasury yield and that of the 10-year note climbed to 28.7 basis points on Wednesday, its highest level since November 2018. CNBC explained the move is called a steepening by financial pros and a reversal from the inversion (short-term rates rising above long-term yields) that triggered fears.
The benchmark 10-year yield has risen about 40 basis points since the beginning of October as investors fled safe haven assets. And investors have turned even more bullish on the economy as the U.S. and China reached an initial agreement and economic conditions have improved, CNBC said.
"A resilient consumer will continue to drive moderate levels of growth and recession risks remain muted," Michael Fredericks, head of income investing at BlackRock, told CNBC.
Contrary View
Contrary to comments from Nobel Prize-winning economist Paul Krugman, CNBC stated the chance of recession in the next year fell to the lowest level since June, according to respondents to the December CNBC Fed Survey. GDP is forecast to remain at 2% over the next two years, the survey, which polled 43 fund managers, strategists and economists, the report added.