The U.S. Yield Curve Is the Flattest Since August 2007

[bostonangler]

The Treasury yield curve from 5 to 30 years flattened Thursday to the lowest level since August 2007, as a combination of weaker-than-expected U.S. inflation and solid demand for a record-sized bond auction bolstered investor confidence in owning long-dated securities.

The gap was poised for its biggest one-day decline in more than a month, with the differential dropping through a previous intraday low from April to as little as 28.3 basis points. The spread between 2 and 10 year Treasuries also narrowed in a bull flattening move.

 

The move comes after U.S. inflation took a breather in April from its acceleration in recent months, with the core consumer price index up by a weaker-than-anticipated 0.1 percent from March and just 2.1 percent on an annual basis. Perhaps in part because of that data, the Treasury saw good demand for its $17 billion auction of 30-year bonds, the largest-ever sale of the maturity.

“Bull flattening of the yield curve signals that inflation is not a problem,” Scott Minerd, chief investment officer at Guggenheim Partners, said Thursday on Twitter. “But that won’t stop the Fed from staying on course for three more rate hikes this year.”

 

Though the flattening has been relentless, it may still have room to go. BMO Capital Markets strategists said in a report Thursday that they see “a clear path” for the yield curve from 5 to 30 years to fall to 20-25 basis points, provided the spread closes the session below 30 basis points.

Investors and Federal Reserve officials alike have been on guard for the yield curve flattening toward inversion, which has historically preceded recessions.

Thirty-year yields fell about 4 basis points on Thursday, a steeper drop than any other maturity, to about 3.12 percent.

 

 

Hmmm since 2007... remember what happened in 2007?

B/A