Inflation expectations rise as the US Treasury yield curve steepens for the second consecutive day
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Jinse Finance reported that the U.S. Treasury yield curve steepened for the second consecutive trading day, mainly driven by a weaker dollar and stronger oil prices, both of which have boosted inflation expectations. The 2Y/10Y U.S. Treasury yield spread once widened to 67.6 basis points, up from 66.6 basis points at Tuesday's close. The yield curve is exhibiting a typical "bear steepening" pattern, meaning that long-term yields are rising faster than short-term yields as investors price in the risk of reaccelerating inflation. Guneet Dhingra, Head of U.S. Rate Strategy at BNP Paribas, stated: "During periods of dollar weakness, we usually see the long end being more sensitive to inflation risks. Therefore, typically, the dollar and U.S. Treasuries often act as the 'pressure relief valves' for the combination of monetary and fiscal policy. If the combination of fiscal and monetary policy suggests that the dollar will continue to weaken, then I think the rise in long-end yields is a textbook reaction."
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