The Treasury Yield Curve Is Finally Going Mainstream
(Bloomberg) -- The Treasuries yield curve is getting its 15 minutes of fame, though the drama surrounding it might bomb as a reality TV show.
While the thinning gap between short- and long-dated yields may seem a tough pitch for a general audience, it’s proving to be compelling viewing beyond the bond-nerd community: The term "yield curve" is trending, with a spike in Google searches around 8 a.m. Tuesday in New York. Researchers at the Federal Reserve Bank of St. Louis have observed a similar trend, noting in a blog post Monday that the 2- to 10-year spread has taken over from the perennial favorite, the consumer price index, as its most popular data series.
The curve is drawing mainstream attention as it pushes to the flattest levels since 2007. The concern is that an inverted curve -- where long-term yields sink below short-term yields -- has been a reliable precursor to recession. U.S. central bank officials have highlighted other potential explanations, such as strong global demand for Treasuries. But some have gone so far as to say that the risk of inversion should guide monetary policy.
Treasury Secretary Steve Mnuchin on Tuesday became the latest senior official to weigh in on the curve, securing it yet another foothold in its climb up the rankings of market indicators. However, he also downplayed the significance of the flattening, and took the opportunity to give a vote of confidence to Fed Chairman Jerome Powell, who’s been a target of presidential criticism as the central bank plows on with policy tightening.
Even as the curve gains a higher profile, it’s a pretty safe bet to say it won’t reach the tabloid heights of the Kardashians -- the sisters whose reality TV-propelled celebrity status is as iconic as it is difficult to explain.
Nor is it likely to have much impact on behavior outside the professional investor community, said Ed Yardeni, chief investment strategist and founder of Yardeni Research Inc. He points out that the yield curve is just one of many indicators that the Fed consults, and another is equity-market performance.
And with equities benchmarks setting new highs, the yield curve’s downbeat message may not hold the spotlight.
“The S&P 500’s making news every night, whereas the yield curve isn’t.”
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