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Dangerous Yield Curves Ahead?

25 June 2018
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Investing in 60 Seconds - Yield Curve
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      | Chief Responsibility Officer
      Transcript

      A flattening US yield curve is often an economic red flag.

      In the past, when the gap between the 2- and 10-year yields has fallen below zero—or inverted—a recession has followed in a year or two. In those environments, you want to own defensive assets like Treasuries.

      A more likely explanation for today’s low long-term yields is the massive liquidity global central banks have pumped into the financial system. That’s distorted many market signals.

      Today’s curve still has a ways to go before inversion. Plus, the global economy looks pretty strong, so we don’t think a recession is in the near-term cards. In which case, you want to favor credit assets.

      Even so, a flatter yield curve can’t be dismissed outright, because these aren’t normal times.

      So, our advice is to strike a balance in your bond portfolio between rates and credit.

      The views expressed herein do not constitute research, investment advice or trade recommendations and do not necessarily represent the views of all AB portfolio-management teams.


      About the Author

      Erin Bigley is a Senior Vice President, AB’s Chief Responsibility Officer, and a member of the firm’s Operating Committee and Women’s Leadership Council. In this role, she oversees AB’s responsible investing strategy, including integrating material environmental, social and governance considerations throughout the firm’s research, engagement and investment processes. Bigley joined the firm in 1997 and previously served as a portfolio manager and trader for the global and Canadian bond strategies. She spent two years based in London as the global head of Fixed Income Business Development for institutional clients. Bigley served as a fixed-income senior investment strategist for over a decade, and as head of the strategist team from 2018 to 2021. Prior to taking her current role, she served as head of Fixed Income Responsible Investing, overseeing the Fixed Income team’s responsible investing strategy. Bigley holds a BS in civil engineering from Villanova University and an MBA from the Massachusetts Institute of Technology’s Sloan School of Management. She is a CFA charterholder. Location: New York