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Does Jerome Powell Hear the Alarm Bells from Flattening Yield Curve?

Courtesy of Pam Martens

Source: Federal Reserve Bank of St. Louis

Source: Federal Reserve Bank of St. Louis

By Pam Martens and Russ Martens: November 9, 2017

In November of 2016, there was more than 100 basis points (one percent) difference between the yield on the 2-year and the 10-year U.S. Treasury Note. As of this morning, that difference stood at 68 basis points, a dramatic flattening in the yield curve and harkening to the levels seen during the onset of the financial crisis in 2017.

As of 7:48 a.m. this morning, the spread between the 10-year Treasury Note (yielding 2.33 percent) and 30-year Treasury Bond (yielding 2.81 percent) is even smaller, at a meager 48 basis points or less than half of one percent.

It is a serious commentary on the bizarre financial times in which we live that a fixed income investor would be rewarded with less than half a percent of additional income to add 20 years of risk to the maturity date on his bond.

The Treasury yield curve is the sine qua non to bond investors because it is thought to represent the composite wisdom on the future of the U.S. economy from a vast body of diverse Treasury buyers – from pension funds to insurance companies to mutual funds to mom and pop investors.

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