U.S. Yield-Curve Alarmists Just Need to Strip Out Risk Premium
- Risk-adjusted curve shows a much milder flattening trend
- Measure points to mid-cycle environment: Standard Chartered
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Alarms about the flattening Treasury yield curve are probably overblown, considering how much tamer a move there’s been once risk premiums are stripped out, according to Standard Chartered Plc.
“The adjustment makes the flattening of the yield-curve slope much less dramatic, and shows that it has quite a bit more room to go before it hits the lows of previous cycles,” the bank’s global head of G-10 foreign exchange research, Steven Englander, wrote in a note to clients. More importantly, this version “more or less matches conceptually” what the Federal Reserve looks at with regard to yield-curve indicators, he said.