Does the 2s-30s Treasury yield curve steepener have room to run, or is it out of gas?: The MUFG Global Markets Podcast

We review and preview the main events of the week – as we likely may for a while – and we conclude that there are several underlying and policy developments that may continue to steepen the 2s-30s Treasury yield curve towards our models 207.6 bps objective over the coming 18 months, possibly sooner. As such, we maintain our core strategic investment stance of the 2s-30s yield curve steepener – though there remain several risks that should prevent that stance from moving in a straight line over the coming year.

Our models recently upgraded our GDP growth forecast to +5.15% yoy in 2021 (from +4.85%), and we may not be done – as the configuration of the new Congress suggests risk of not just greater fiscal stimulus over the coming five weeks, but of another dose of stimulus around mid-summer 2021.

In this episode, MUFG's U.S. Rates Strategist, John Herrmann, discusses that should our models forecasts prove accurate, the FOMC’s objective of achieving “substantial further progress… towards the Committee’s maximum employment and price stability goals” likely may be evident before year-end 2021, or early on in 2022. Might bond market participants anticipate an official FOMC announcement over “taper and cease” of asset purchase programs near that timing? We continue to think so, possibly adding a final push to the yield curve steepener.  

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