Sunday, October 4, 2020

September 2020 Yield Curve Update

 The yield curve continues to slowly show optimism.  The long end of the curve continues to climb.  It's now back up above the yields of early April.  This suggests that the market foresees continued relatively strong recovery in employment and that the Fed is adequately providing liquidity.  Forward inflation expectations have leveled out below 2%, but they are basically as high as they were before the Covid-19 outbreak.  That's probably reasonably good news.  And, the expected date of the first rate hike is settling in around the June 2021 contract, which is pretty bullish.  The market seems to think recovery is in the works.


Both because there is an endemic lack of adequate supply and because of some of the demand responses to Covid-19, residential investment should be strong to help with a continuation of positive trends.  This suggests to me that if there is much of a pullback in stocks, it will be from an unforeseen negative real shock.

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