A few weeks ago, we highlighted the apparent contradiction of the reflation trade that has unfolded in the Treasury market. In brief, that contradiction is the flattening yield curve.
This week, we’re returning to the yield curve – the 2-10 spread specifically – and we will be discussing what it means if it is indeed a harbinger of slower economic growth.
A Trade of Desperation?
First, we must posit that the narrowing spread between the 2-yr note yield and the 10-yr note yield might not be the telltale economic indicator some pundits think it is.
It could be, yet we can’t dismiss the possibility that it’s a byproduct of a desperate search for yield among foreign investors staring at such low rates at home.
Hear Russell Napier on Debt Deflation: Too Much Debt, Not Enough Money
Before inflation, the yield on the 10-yr Japanese Government Bond is 0.02%; the yield on the 10-yr German bund is 0.38%, and the yield on the UK’s 10-yr gilt is 1.26%. The yield on the 10-yr Treasury note is 2.33%.
This post was published at FinancialSense on 11/13/2017.