Here’s the trade that keeps pushing long-term Treasury yields to 2023 highs
It was the trade that pushed yields on the longest-maturing Treasurys to year-to-date highs last week, while knocking the momentum out of equities and un-inverting the yield curve for all the wrong reasons. That trade is known as a bear steepener, which continued to play out during Monday’s session.
Ordinarily, the bear steepener is associated with an outlook for a strong U.S. economy that can support higher rates years into the future. There’s more than one way to read the trade, however, and this time around it’s being seen as a reflection of rising worry about the U.S. fiscal outlook, fueled by the Treasury Department’s increased borrowing needs and a downgrade by Fitch Ratings.
Given the increasing supply of Treasurys, plus quantitative tightening outside the U.S., “over the medium term we definitely think the curve gets a lot steeper or less inverted. Higher yields could be perceived as negative for investors should they put downward pressure on equities.” All three major stock indexes DJIA SPX COMP also ended lower that day before ending Friday with another round of losses, snapping three straight weeks of gains for Dow industrials and the S&P 500.
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