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.
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