The bear steepening from late August was a head fake. We went from about 18 basis points between the 2- and the 10-year on August 27th to 34 on October 10th. That’s when the equities market threw a tizzy as the ten-year reached the 3.25% threshold.
And just as when, we had a similar dynamic in January and February, Treasuries have rallied across the curve since that time, particularly at the longer end. We are now back to about 25 basis points, with another rate hike coming in December.
Take a look at this chart and tell me what you see:
I see a (terminal) decline in yields. The chart goes straight down from 2013. This was sometime after the taper tantrum and before the taper of QE asset purchases began. Since that time, the curve has flattened. And it is now almost pancake flat. The next stop is inversion. And that’s not a good sign.
When will we get there? I’ve been expecting it to be near year end. The bear steepening made that calculus look wrong. But, now, we are back on track to where it is very conceivable that, by year end, we see inversion.