US treasury yield curve to steepen after Presidential election – Morgan Stanley
|The investment banking giant Morgan Stanley expects the US treasury yield curve to steepen following the Nov. 3 presidential election, irrespective of who takes office.
The yield curve steepens when longer duration yields rise more than short duration yields.
Key quotes (Morganstanley.com)
A steeper yield curve signals expectations of a stronger economy ahead, and we maintain high confidence in a V-shaped recovery.
Clarity on the election, ongoing economic growth, the passage of a fiscal stimulus bill (which we still see as likely next year), and the distribution of a vaccine could all be catalysts for rising long-term rates.
A technical factor points to higher long-term yields ahead: Falling foreign demand for the US long-duration bonds, even amid soaring Treasury issuance. This adverse supply-demand dynamic also could contribute to eventual yield-curve steepening.
The spread between the 10- and two-year yields has risen by nearly 28 basis points this year.
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