Yield Curve Has Rarely Been Steeper

By on January 17, 2010

Jeff Sommer, in the N. Y. Times, discusses the implications of the large difference between long term and short term interest rates and cites William H. Gross, the co-chief investment officer of the Pacific Investment Management Company, or PIMCO, the world’s biggest bond manager, who says the gap between short- and long-term rates has rarely been greater.

“If you go back in history and look not just in the United States but in global fixed-income markets for several centuries,” Mr. Gross said, you will rarely find a greater disparity between short- and long-term rates.

A steep yield curve portends a strengthening economy and is enticing investors in safe short term securities to venture out into the more dangerous waters of the longer term notes. If the economy’s growth results in a spurt in inflation, those who make such a shift (short to long) could find they’re losing more in principal than the interest that’s coming in.

Source: N. Y. Times

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