The U.S. yield curve's recent steepening-after a period of persistent flattening-reminds us that the spread between two- and 10-year Treasury yields reflects much more than the state of the U.S. economy. Global interest rates and monetary policy also play a role in shaping the curve, with a recent tweak in Bank of Japan (BoJ) policy helping drive the mild steepening.
The BoJ announced it would allow 10-year bonds to move in a wider range. Why would this affect the U.S. yield curve? Global investors often seek out the highest long-term yields. The U.S. was the most attractive destination among developed markets for some time, given its greater progress toward economic recovery and rate normalization. This spurred inflows to U.S. debt markets that helped contain the rise in long-term Treasury yields, as Fed rate increases pushed up the short end. The result: a closing gap between 10- and two-year yields, as the orange line in the chart above shows. The German curve, by contrast, remained relatively steep (green line). Now, as evident in the far right of the chart, we are seeing the U.S. yield curve steepen a bit amid speculation that rising yields in Japan could lure Japanese investors back home and prompt them to sell some of their holdings in long-term U.S. debt.
Strong growth, but rising uncertainty.
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Richard Turnill
is BlackRock's global chief investment strategist. He is a regular contributor to
The Blog .
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
