Tags: Strategist | Inflation | Fears | Steepen | Yield Curve | treasurys

Strategist: Inflation Fears to Steepen Yield Curve

By    |   Tuesday, 29 Dec 2009 02:23 PM

The record steepness of the yield curve will continue, as the economy strengthens and concern about inflation rises, says Michael Pond, interest rate strategist for Barclays.

The premium of 10-year Treasury bond yields to 2-year yields has hit a peak of 2.85 percentage points.

The yield curve consists of the yields of Treasurys with all different maturities. A steep yield curve occurs when the 10-year Treasury yield is much higher than the two-year yield.

“There’s potential for it to go further still,” Pond told Bloomberg.

Part of the reason is that short-term rates are at record lows and will likely stay that way for at least the next few quarters, he says.

“Even once the Fed starts to remove stimulus, we think they’ll do so at a very gradual pace. That could steepen out the yield curve further if economic data continue to come on the positive side, as we expect.”

Concern about inflation also will steepen the yield curve, Pond says. He predicts the 10-year Treasury will end next year around 4.5 percent, up from 3.8 percent now.

Newsmax columnist Larry Kudlow says the steep yield curve is a positive sign for the economy.

“When the curve is wide and upward sloping, as it is today, it tells us that the economic future is good,” the CNBC commentator writes in his latest column.

“So there could be a mini boom next year.”

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The record steepness of the yield curve will continue, as the economy strengthens and concern about inflation rises, says Michael Pond, interest rate strategist for Barclays. The premium of 10-year Treasury bond yields to 2-year yields has hit a peak of 2.85 percentage...
Strategist,Inflation,Fears,Steepen,Yield Curve,treasurys
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2009-23-29
Tuesday, 29 Dec 2009 02:23 PM
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