Yields Have More Room to Rise If Past Recessions Are Any Guide
A trader watches news on a television monitor as the DAX Index yield curve shows a drop at the Frankfurt Stock Exchange, operated by Deutsche Boerse AG. (Photograph: Alex Kraus/Bloomberg)

Yields Have More Room to Rise If Past Recessions Are Any Guide

The swift rise in Treasury yields that triggered some wild swings in the stock market stopped this week – at least temporarily. Shawn Snyder, the head of investment strategy at Citi Personal Wealth Management, joins the “What Goes Up” podcast to discuss what caused yields to cool off and what to expect next.  Highlights of the conversation are below. 

On this week’s retreat in yields:

“The last week or so could probably be chalked up to Covid jitters. You've seen some renewed lockdowns in Germany … And I think there's some concerns that these new strains are maybe spreading a bit more rapidly than we initially anticipated. So I don't think that delays the recovery significantly. You heard President Biden talk about raising his goal from 100 million shots to 200 million. They are on pace to get there at the current pace of about two-and-a-half million doses per day.”

Over the long run:

“What's going to happen over the long run — this is not a new phenomenon to see the yield curve steepen. It happened when the U.S. economy exited recession during the last four recessions, and eventually the spread between the 10-year yield and the two-year yield, which is what we call the yield curve, actually peaked at about 2.4% or so during those last four recessions. Right now, the spread is about one-and-a-half percent. So that would imply this probably has further upside here to go. And if we look at the past four recessions again, it took about 22 months on average from the end of the recession to the yield curve peaking.”

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