Rate cuts risk steepening the yield curve
The guest and host argued that cutting short-term interest rates into sticky inflation could juice demand, raise inflation risk premiums, and drive selling in long-duration bonds.
The argument
Jim Bianco and the hosts discussed how rate cuts could paradoxically push long-term yields higher. Patrick Ceresna argued that this dynamic makes a yield curve steepener attractive, specifically focusing on the five-year/thirty-year spread widening as long-duration bonds come under pressure.
The thesis, stress-tested
✓ What validates it
- ✓The five-year/thirty-year yield spread widening toward or past 200 basis points
▸ Risks discussed
- ▸Inflation expectations rolling back to pre-COVID norms
- ▸Bullish technicals showing returning demand for long-end bonds
Hear it yourself
"Jim and I will discuss whether a Fed rate cut is even a good idea, inflation risks, the unobvious relationship between the jobs report and the southern border, why cutting short term rates could actually shock long term yields higher, and much, much more."
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