The historically longest inversion of the U.S. yield curve, which lasted 793 days, is now behind us. The spread between two- and ten-year U.S. Treasury yields is back in positive territory.[1] We expect the curve to steepen further as the Federal Reserve (Fed) continues to cut interest rates. Similarly, in the case of German government bonds (Bundesanleihen or “Bunds”), the yield spread between these two maturities has also recently returned to positive territory – some two weeks later than U.S. Treasuries. Future developments on this side of the Atlantic should be similar to those for U.S. Treasuries, although we expect the steepening of the Bund curve to be somewhat more moderate than for its U.S. counterparts.
The end to inverted yield curves is being driven by a so-called “bull steepening.” This means that while both ten-year and two-year yields have fallen sharply from their highs in May of this year as…
