Yield curve now flagging recession for longest time on record, but growth persists
Investing.com -- The inversion in a key part of the U.S. Treasury yield curve, a well known recession indicator, is now the longest on record, exceeding the prior streak seen more than 40-years ago, but even as the economy has shown more fight than expected, the curve is likely to remained inverted.curve has been downward sloping, or inverted, for 482 business days, BofA said in a Thursday note.
But even as U.S. economy growth is holding up better-than-expected, the prospect of dis-inversion, or a return to an upward slowing yield curve, isn't likely to materialize quickly, BofA suggests, as"the longer the period of Fed cuts, the slower the dis-inversion." The yield curve also drums up a lot of trading action as traders jostle against one another, betting on upward slowing action in the curve or downward slowing action. At the start of the year, many were piling on steepener bets, or bets that the yield curve would soon revert to its trading upward sloping projection amid expectations for aggressive rate cuts from the Fed pushing shorter-term yields down.
The overnight funding rate, or the cost, exceeds the rate received for going long, or buying, U.S. bond yields, reflecting a negative cost of carry and souring sentiment on the steepner trade, BofA says.
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