Betting on further US yield curve steepening? Not so fast!

NEW YORK: Investors betting that optimism over the US economic outlook will lift yields on longer-term US Treasury securities faster than short-term rates could be in for a major surprise.

A steepening curve, when longer-dated yields rise faster than shorter-dated ones, typically signals higher inflation and brighter economic prospects.Bond investors have started to price in a victory for Democratic challenger Joe Biden over President Donald Trump, an outcome which could mean billions of dollars of additional COVID-19 stimulus, aid for state and local governments, and infrastructure spending.

"The growth is shaky enough with so much uncertainty that the bond market is not comfortable re-pricing for higher yields and a steeper curve," he said. JPMorgan said in a research note that while it projects a steeper curve going into year-end, steepening positions are stretched, which poses a near-term risk.

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