Occasional Daily Thoughts September 29th
By LaRue Gibson on September 29, 2023
The federal funds rate/30-year Treasury Bond yield curve has steepened significantly since the spring of 2023. The curve is experiencing a rare steepening known as a bear steepener. This bear steepener in the yield curve has seen long-term interest rates rising more quickly than short-term interest rates. The widening gap that occurs often reflects market expectations of higher inflation and/or stronger economic growth in the future. Consequently, the yield on long-dated bonds rises at a quicker pace than short-dated bonds, increasing the cost of borrowing for longer periods. Bear steepeners are unusual – 1969-1970 and 1973-1974 are among the only examples – but even these rare cases were associated with end of business cycle dynamics. The illustration below implies that yield curve steepening often precedes recession.
Yield curves continue to forecast a coming recession.
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