MacroResearchBoard

First The U.S., Then The U.K. And Germany – February 16, 2021

A just-published report examined a range of topical investment issues, including the prospects for a further steepening of the U.S. yield curve (the 2/10 curve), and likelihood that European yield curves will awaken from their flat profile and start to steepen. The answers were: yes and yes.

High odds that the global economic recovery will strengthen, ongoing fiscal stimulus and rising long-term inflation expectations all point to upward pressure on yield curves, despite the aggressively accommodative policy stance at the Fed, BoE and ECB. Bond investors are not yet fully discounting the improvement in the medium-term economic outlook, and the fact that the backdrop is much less deflationary than is widely perceived.