Replies to post #18802 on Market Direction and Stock Trends

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Stick With U.S. Yield Curve Flatteners

* September 29, 2016

Any Fed rate hike pressures will be felt most strongly at shorter maturities, causing the yield curve to flatten further.



If the U.S. dollar were to strengthen on the back of rising Fed hike expectations, it would lead to an additional tightening of U.S. monetary conditions. This would provide more flattening pressure on the yield curve, as has been the case over the past few years. But with the Fed now aiming for a much flatter path for rates in 2017, a big surge in the U.S. dollar that would depress the long-end of the Treasury curve is less probable. Our call for a flatter yield curve is in the context of a rising trend in U.S. Treasury yields (i.e. a bear-flattener), albeit a more modest one compared to the run-up to the first rate hike at the end of 2015.

Bottom Line: The 2/10-year Treasury curve will continue to flatten as the probability of a December Fed rate hike increases.

http://blog.bcaresearch.com/stick-with-u-s-yield-curve-flatteners

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