Intraday Market Thoughts

Archived IMT (2008.09.19)

by Ashraf Laidi
Sep 19, 2008 6:45

WHAT YIELD CURVES ARE TELLING US? The latest yield curves of the US, EU and UK in the Analytics Section of the website show both the EU and UK curves (as measured by the difference between 10 and 2 year yields) to have steepened (grew more inverted) in recent days. See Deconstructing Yield Curves for more detailed explanation on how to read the curves. The steeper the yield spread, the more it is indicative of slowing economic dynamics and downside risks because as 2-year yields fall relative to 10--year yields, the 10-2 year spread increases, hence the curve in the chart increases. Note how the US yield spread turned lower on Thursday due to the rally in US stocks, which eased the downside risks and effectively reduced the 10-2 spread. Market probabilities for a US rate cut moved lower, thereby pushing higher the 2-year yield and narrowing the 10-2 spread. Should you have any questions, please do not hesitate to post them in the comments section of the Global Yield Curves.


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