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A Message From The Yield Curve

The slope of the yield curve informs about the future state of the economy. Post the great recession, the yield curve hasn’t tracked always the “normal” cycle shown in Figure 1. There are two reasons why this is the case and what it means for core fixed income investing. Figure 1: U.S. Treasury and Japanese Yield Curve Compared Source: Bloomberg, monthly data. T-= years before the cycle peak of economic growth, T+ = years post peak and into recession. The first reason is to compare the slope of the U.S. yield curve to Japan. The Japanese curve followed the normal cycle but deviated when deflation took hold (T+2 to T+4, Figure 1). Notably, the U.S. yield curve (orange line) follows the

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