financialsense.com / PATRICK O’HARE via Briefing.com / 04/17/2017
When corporate spreads are narrowing relative to the risk-free rate, it suggests there is a view among market participants that the economic outlook is improving and, accordingly, that there is less risk of default. The converse also holds true, which is why the spread between corporates and Treasuries is watched closely as a sign of confidence—or lack thereof—in the economic outlook.
What about spreads, though, between government securities?
The US market is currently battling concerns about a flattening yield curve, which isn’t exactly what one would expect to see if there was strong faith in the economic outlook.
Generally speaking, the curve should be steepening with the 2-year – 10-year spread widening on a promising outlook as stronger growth should lead to a pickup in inflation, which would drive up rates at the inflation-sensitive back end of the curve. Lately, however, that hasn’t been happening.
The Federal Reserve raised the target range for the fed funds rate in December and March to account for the improvement in economic activity, but strikingly, the yield on the benchmark 10-yr note has come down sharply in recent weeks, dropping at a faster pace than the yield on the
Read more ... source: The Bitcoin Channel
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