Yield Curve

The Yield Curve is the risk of a fixed income asset experiencing an adverse shift in market interest rates. Investopedia has a comprehensive article on yield curves and how the movement translates to the market.  The Balance explains that a steep yield curve means that the gap increases between short-term bonds and long-term bond yield. A Steepening yield curve usually means that inflation is expected to rise and economic growth will be strong.

Christine Poole on Yield Curve

We knew rates were going up last week and the US got good jobs numbers, so their economy is sound. I guess now the market realized that rates will ramp up. She’s glad to see the 10-year yield curve rise to 3.2%, while the spread between the 2- and 10-year is now 3-4 basis points vs. 25 points last month. The US Fed said it would increase rates once more this year and three in 2019, so we need rates to rise to counter a recession down the road when the yield curve inverts. Earnings should be very good this quarter, and up 22% in 2018. We need that profit growth from the U.S. in Q3. The big question is what happens to the tariff impact. Friday we see the bank earnings and this will be critical. Tech stocks got ahead of themselves, so this pullback is healthy. We need rates high enough to cut later when the recession hits.

What we can expect is that earning should be good, and interest rates will certainly go up to counter an eventual recession.