The profitability of lenders typically declines with a flattening of the yield curve
. "Yield curves are responding to what they see, to what I believe is a global economic slowdown," said Peter Boockvar, Chief Investment Officer at the Bleakley Advisory Group, on CNBC earlier.
Additional support for gold has emerged through the renewed strength in bonds and not least the accelerated flattening of the yield curve
-- something that in the past has signalled an increased risk of an economic slowdown in the US.
The net interest margin benefited from increases in the Federal Reserve Board's target federal funds rate through the past year and partial quarter benefit from the higher margins on the acquired FFKT net assets, partially offset by higher funding costs as well as a flattening of the yield curve
In its analysis of second quarter numbers, CBRE said that with the flattening of the yield curve
, borrowers with a settled capital structure and long-term horizon may want to take advantage of long-term financing.
With the flattening of the yield curve
, we have seen more borrower demand for longer-term lending, which has coincided with increased willingness in the investor community to seek higher yields further out on the curve.
Minutes from the latest Fed meeting showed that policymakers are still positive about current economic developments, despite flagging some concerns about trade tensions and the flattening of the yield curve
However, the flattening of the yield curve
coupled with strong competition has resulted in the cost of attracting deposits outpacing the growth in loan yields, which has put pressure on our net interest margin."
With the recent flattening of the yield curve
, economists and policymakers are currently discussing the likelihood of a yield curve inversion.
However, the Fed maintains a much more tenuous influence over long-term rates, which are more influenced by long-run market expectations for inflation and increasingly by comparable international long-term rates.<br />Short-term rate increases have certainly outpaced the longer end in recent years, resulting in a flattening of the yield curve
. However, our work suggests that in order for the yield curve to signal a coming recession, it must actually be inverted (with short-term rates higher than long-term rates).
Some worry that the flattening of the yield curve
is a sign of higher recession risk (though I see it more as a reflection of foreign purchases of longer-maturity US bonds turbocharged by institutional liability-driven investments).
These non-traditional sensitivities indicate that if a substantial flattening of the yield curve
occurs--with long-dated yields either falling by more than short-dated yields, or rising by less than short-dated yields--then the value of liabilities in the cash balance plan will fall.
That said, a continued flattening of the yield curve
is a high probability, indicating a weak economy.