The past week saw rising anxiety about a flattening yield curve rise to a crescendo. The 2s10s spread narrowed to as low as 40 bps before recovering and ending the week at 46 bps. Coincidentally, the BoA Global Fund Manager Survey showed an overwhelming majority of respondents hold believe the yield curve will flatten.
Even though it hasn't inverted yet, an inverted yield curve has signaled recessions in the past. This raises two key questions for investors.
- What's the near-term outlook for inflation?
- Is the Fed willing to drive the economy into a recession in order to fight inflation?
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