- Key US bond yield spread rises to highest in over two years.
- Steepening of the yield curve could be attributed to hopes for economic recovery.
The US treasury yield curve, as represented by the spread between the 10- and two-year yields, expanded or steepened to around 72 basis points on Friday to hit the highest level since February 2018.
The curve steepened by 25 basis points last week and over 10 basis points on Friday alone and is indicative of growing optimism in the economic recovery among bond traders.
Friday’s US Nonfarm Payrolls report showed the economy added 2.5 million jobs in May, pushing the unemployment rate lower to 13.3%. Wall Street economists were looking for job losses of around 8 million. The data has revived the talk of a V-shaped economic recovery in the US.
While high growth expectations are lifting long-term yields, the short-term yields are lagging due to Federal Reserve’s pledge to keep interest rates near zero for a prolonged time.
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