What is the Yield Curve Telling Us About Future Growth?
SUMMARY. Although we have seen rates fall post the recent Federal Reserve rate cut not enough is being focused on the yield curve steepening which maybe an indicator of FUTURE not current growth which seems where most of the fear and panic resides. Its the steepest (10 yr Treasure - 2 Yr) its been since 2018 which may indicate post the virus growth may resume at a health pace. In fact the entire yield curve has steepened from 3 month Treasury notes to 30 year year bonds. Its one of many indicators used by investors to determine sentiment on growth to come.
INVESTMENT IMPACT. We continue to view the virus as blip on growth not the end of it. We remained focused on growth resuming in 2H20 vs the near term economic slow down as markets remain headline driven focused mainly on virus cases/death growth outside China. As a reminder the window before China's cases peaked was 8 weeks from when cases first accelerated thus we will likely see negative news flow for at least the next month on this front. As mentioned before, drug trial results will begin to get reported over next couple of weeks which may alleviate fears. Also to note, China financial markets have been more resilient to negative news since their virus cases appeared to have peaked.
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