Courtesy of Mish.
A recent Wall Street Journal story stated that “A flattening of the Treasury yield curve in 2017 is a worrying sign for investors banking on resurgent U.S. inflation and growth.”
Hedgeye responded REALLY?! Wall Street Journal: “A Worrying Sign on US Inflation & Growth”
Let’s investigate starting with Hedgeye.
With stocks off all-time highs, there are a lot of bear market stories swirling around about how U.S. economic growth is faltering. One of these false narratives is about the classic economic cycle barometer, the yield curve (i.e. the US Treasury 10-year Yield minus the 2-year Yield).
The yield curve just registered its highest quarterly average in five quarters. So that’s just wrong.
BOTTOM LINE
As we’ve been saying for some time now, U.S. economic growth is accelerating. Expect the yield curve to continue to steepen, despite the false narratives being passed around bears.
Yield Curve Discussion
For starters, “i.e.” is latin for “id est” and means roughly “that is” while “e.g.” stands for “exempli gratia” which means “for example.”
The reference “i.e” is flat out wrong. The yield curve does not equate to the 10-year yield minus the 2-year yield or any other spread, but rather the overall curve of interest rates from overnight to 30-years.
The Hedgeye example pertains to the steepness of a portion of the curve, specifically the 2-10 spread, for a select period of time hand-picked to show steepening.
Let’s investigate other time periods and other spreads.
10-Year Minus 2-year
