Bear steepening U.S. yield curve dashes 'soft landing' hopes: McGeever
By Jamie McGeever
ORLANDO, Florida (Reuters) -The surge in long-dated U.S. bond yields currently underway and driving the so-called 'bear steepening' of the yield curve will dramatically reduce the economy's chances of achieving the fabled 'soft landing' and avoiding recession.
High and rising long-term borrowing costs tighten financial conditions by making it more expensive for businesses and consumers to roll over debt or get credit, and more expensive for companies to invest.
A steepening yield curve is when the spread between long- and short-term bond yields widens. Either the long-term yield rises faster than the short-term yield — a bear steepener — or the short-term yield is falling more — a bull steepener.
The curve is aggressively bear steepening now as investors dump long-term bonds. But what makes this situation even harder to navigate is the fact that the curve is still inverted — the two-year yield is still higher than the 10-year yield.
Bear steepenings of the benchmark two-year/10-year U.S. Treasury yield curve, when the curve is inverted, are rare.
Warren Pies, founder of research firm 3Fourteen Research, classes a bear steepening as when the 10-year yield rises 50 basis points or more while the two-year yield stays largely unchanged. He reckons there have been 12 episodes in the past 50 years including the current move, four of them around 1980-81.
Dario Perkins at TS Lombard in London reckons there have been six bear steepenings in periods of broader curve inversion going back to the late 1960s, again including the current one.
The historical sample size is relatively small, and the precedence for what follows is pretty patchy. But the flags raised are more red than green.
«The hope is that it's
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