The yield curve slope is getting steeper. It seems that the reflation trade narrative is gaining weight, as we get closer to Election Day and Trump is gaining momentum on the polls. He is seen as a bigger spender than Democrats in terms of fiscal policy and therefore more prone to bring inflation back. And then there is the Fed. In the chart below, you can see the 10 year Treasury yield after the first rate cut in every instance since 1989. There is no clear pattern to highlight, but in the current cycle, the yield has risen significantly more than in prior periods, and it doesn’t appear to be abating anytime soon. Last but not least, and related to the budget deficit, and the debt level, there is a growing concern about the full faith and credit of the U.S., which is championed by BRICs nations looking to get out of the petrodollar. All these factors are weighting on the 10 year yield, and consequently on all risky assets that use it to discount cash flows.
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