Chart of the week: Yield curve flattens
- U.S. government bonds pulled back this week as U.S. political concerns drove investors toward safe-haven investments. The U.S. 10-year yield declined to 2.2%, the lowest level since late April and the largest one-day decline since the U.K.’s decision to leave the European Union last June.1
- The yield premium between the 10-year Treasury note and the two-year note fell to 0.98% – the lowest level since late October immediately preceding the U.S. presidential election. A declining premium is known as a flattening yield curve and usually indicates a reduced outlook for U.S. economic growth and inflation.
- The move came in a week that saw U.S. stocks pull back and the CBOE Volatility Index spike amid growing concerns over the Trump administration’s ability to deliver on tax reform and other pro-growth initiatives.2
- While investors appear to still be pricing in a rate hike in June and modestly higher growth and inflation expectations over the short term, their longer-term expectations appear to be fading. As indicated by the flattest yield curve in over six months, bond investors still do not anticipate faster economic growth or a significant uptick in inflation over the long run.
The Alternative Thinking Week in Review market commentary and any accompanying data (“Market Commentary”) is for informational purposes only and shall not be considered an investment recommendation or promotion of FS Investments or any FS Investments fund. The Market Commentary is subject to change at any time based on market or other conditions, and FS Investments and FS Investment Solutions, LLC disclaim any responsibility to update such Market Commentary. The Market Commentary should not be relied on as investment advice, and because investment decisions for the FS Investments funds are based on numerous factors, may not be relied on as an indication of the investment intent of any FS Investments fund. None of FS Investments, its funds, FS Investment Solutions, LLC or their respective affiliates can be held responsible for any direct or incidental loss incurred as a result of any reliance on the Market Commentary or other opinions expressed therein. Any discussion of past performance should not be used as an indicator of future results.