US yield curve steepest since 2017

The US Treasury yield curve is steepening, with the longer duration yields tracking the inflation expectations higher. 

The spread between the 10- and two-year yields has risen to 96 basis points, the highest level since July 17, 2017. The 10-year yield has increased to a 10-month high of 1.09 alongside the 10-year breakeven rate’s ascent to highest since November 2018. 

The rising treasury yields could become the reason for a correction in the equities trading at record highs. 

“A big argument for buying the US stocks now at such high valuations is their value relative to extraordinarily low bond yields. As Treasury yields rise, that advantage gets diminished. Right now, the earnings yield on the S&P 500 is the lowest vs. 10-year Treasury yields since 2018,” Bloomberg’s Lisa Abramowicz tweeted Thursday. A potential drop in equities will likely bode well for the oversold US dollar. 

As such, if the steepening of the yield curve gathers pace, the Federal Reserve may have to consider yield curve control strategy and target a specific level at the long-end of the curve. “Looks like the Fed will have to start talking about Yield Curve Control soon as the US yield curve keeps steepening,” market analyst Holger Zschepitz tweeted.