The analysts argued that the recent flattening of the yield curve has been driven by monetary policy and ongoing growth, or not on fears of a slowdown.
“The bond market isn’t flashing yellow or red yet,” Brian Nick, chief investment strategist at Nuveen, told the WSJ. “The prevailing story here is still that the U.S. is growing pretty nicely.”
While the Federal Reserve has hiked rates, which contributed to higher yields on short-term debt, the ongoing loose monetary policies overseas has contributed to increased foreign demand for later-dated U.S. debt, putting pressure on long-term U.S. Treasuries.
Analysts have also pointed out that economic weakness that has traditionally accompanied an inverted yield curve has not manifested. For instance, Credit Suisse pointed to deterioration in job creation and corporate earnings as common indicators that foreshadow an economic downturn head.
“For me, the principal driver of U.S. equities is U.S. growth, and I’d say that [second-quarter] data showed a meaningful acceleration,” Keith Parker, chief U.S. equity strategist at UBS, told the WSJ, poingting out that data showed the U.S. economy grew 4.1% in the second quarter – the fastest pace in nearly four years. “That backdrop has held firm.”
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