The highest rate of return since 2007
The recent rise in US 10-year Treasury yields is weakening the yield curve inversion.
Source: Deutsche Bank
The yield on the 10-year US Treasury reached a 15-year high of 4.36% earlier in the week. At the end of July, it was still 3.95%. Meanwhile, yields on two-year Treasury notes have recently stabilized at around 5%. The result: an inverted yield structure in the US, with the spread between long and short-term interest rates narrowing (see chart). Usually, an inversion in the yield curve is considered one of the best harbingers of a recession. But this time, there has been no recession in the US yet.
In addition, the Federal Reserve Bank of Atlanta corrected its much-anticipated economic metric, the GDP Model Estimate (GDPNow), significantly higher just in the past week. It is now expected that the real GDP in the United States will grow by 5.8% during the current third quarter. This adjustment can be attributed to sharply higher expectations for private consumption and investment. The recent and less obvious reversal in the interest structure supports this clearly bright economic outlook in the US.
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