28 October 2020

US Treasury Yield Curve to Steepen After Presidential Election - Morgan Stanley

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The investment banking giant Morgan Stanley expects the US treasury yield curve to steepen following the Nov. 3 presidential election, irrespective of who takes office.

The yield curve steepens when longer duration yields rise more than short duration yields.

Key quotes (Morganstanley.com) 

“A steeper yield curve signals expectations of a stronger economy ahead, and we maintain high confidence in a V-shaped recovery. 

Clarity on the election, ongoing economic growth, the passage of a fiscal stimulus bill (which we still see as likely next year), and the distribution of a vaccine could all be catalysts for rising long-term rates. 

A technical factor points to higher long-term yields ahead: Falling foreign demand for the US long-duration bonds, even amid soaring Treasury issuance. This adverse supply-demand dynamic also could contribute to eventual yield-curve steepening.” 

The spread between the 10- and two-year yields has risen by nearly 28 basis points this year.

Click here for the original article.

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