The Yield Curve Is Distorted. Yields Must Rise (Part 1)
The US Treasury Note Yield Is ‘Junk’.
The yield curve slope has become an unreliable predictor of the business cycle. The problem runs deeper than the yield curve itself, because the benchmark 10-year ‘risk free’ yield carries most of the distortion. This breakdown tells us less about the real economy, but far more about what should be the ‘true’ level of US Treasury yields. This questions whether the 10-year Treasury note remains the appropriate ‘risk free’ benchmark. Bond term premia are being heavily distorted by both US Fed and Treasury actions. The conclusion is that although a fall into a deep US recession is a less likely outcome of this bias, US 10-year yields are too low by around 110bp.
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