This year, the yield curve of Treasury USA has significantly irreplace. The yields of the short -term segment decreased, in the wake of the changed expectations on the cuts of rates in the short term, while the long -term segment undergoes specific structural pressures. The team underlines it Global Fixed Income, Currency and Commodities Group of JP Morgan Asset Management analyzing the reasons that have increased the slope of the yield curve and the chances of this trend can continue
Strategies for an irreplacement of the yield curve
The first three months of the administrationand Trump – explain the experts – were marked by uncertainty: fromThe policy on duties to tax stimuli, the independence of monetary policy and the markets are wondering what the implications will be. In the short -term segment of the curve, the risk of recession has increased, following recent data that report initial difficulties in the labor market, and the trusted indicators report a slowdown, as consumers and companies are adapting to the perspective that the duties will cause an increase in prices with consequent reduction in profits. As proof, from the investigation conducted by the University of Michigan on consumer trust, it emerges that trust is at the minimum of recent years. In addition, the analysis of our research team on credit investment gradand “shows that every 10% duty RidThe average profits of 0.5-1% would dare, which means that an average rate of 20% could make the company budgets contract by approximately 1-2%. This effect could leave the segment of the curve unchanged, as long as the markets continue to serve the possibility that Federal Reserve (Fed) reduces rates several times in the remaining part of the year. However, the uncertainty is greater in the long -term segment and the political scenario represents a key element. The recently ventilated threat from Trump to replace the president of the Fed, Jerome Powell, raises new questions about the independence of the Institute of Philadelphia in the long run. This uncertainty makes the long -term rates anchoring policy of anchoring rates. The prospects of New tax stimuli They could accentuate the pressure on long -term returns, especially in a stagflation scenario that would force the Fed to reduce the rates despite the persistence of inflation “.
Quantitative assessments
The difference between short -term performance and long -term It is known as a spread. THEor “Steepenn Trade” is a strategy that involves the irreplacement of the yield curve, that is, betting on the expansion of the differential between long -term and short -term interest rates, which often happens when economies enter and leave a phase of recession while the central banks reduce interest rates. To April 23, 2025, The spread between the performance of the US Treasury at 2 and 10 years old was about 65 basis points (PB), net of the minimum cyclical but still far lower than the levels usually recorded during and after recessive contexts, as illustrated in the graph under the underlying. Historically, the irreplacement of the curve following a recession saw the spreads of over 100 pb grow, offering a significant margin for Steenener’s strategies in the event that The US economy begins to slow down due to the impact of the duties.
Technical factors
Also the technical picture “It is in favor of steep curves. The inPolitical certainty makes the long -term demand for long deadlines unstable and the high volatility of the rates could reduce the risk propensity of institutional buyers. According to the owner of JP Morgan Asset Management brokers, the Dealers did not show particular interest in adding Duration, while the property managers take time given the uncertainty of the macroeconomic conditions. Furthermore, the effects of deleveraging in the wake of the bond selling subsequent to the main announcements of duties are still felt. The differentials of swap remain large, a sign that residual budget constraints remain and that the propensity has decreased to assume long duration risks. These technical factors contribute to a structurally weaker offer in the long -term segment, further supporting the thesis of an irreplacement of the yield curve. In addition, the Futures on the Fed funds continue to reflect a soft landing scenario, with a path of rates of rates that are not very incisive and a terminal rate of over 3%, leaving margins for a correction in both directions, especially if the slowing down of the growth will be faster or if Inflation will suffer a new acceleration. In both scenarios, the slope of the curve could accentuate, both through the reduction of rates in the short-term segment shortly and a long-term sell-off “.
What does it mean for bond investors?
The macroeconomic context together with the political one “suggest more and more positions oriented to the irreplacement of the curve. Short -term rates are anchored to slow down growth and the impending risks of recession, while long -term rates must face structural and political pressures. The technical flows and current evaluations continue to report margins for a further irreplacement. USA at 2 and 10 years still compressed compared to post-registed historical averagesAnd, Steenener’s strategies could be an asymmetrical and timely expression of the current context “.
