The Yield Curve Message- Earnings: TRP, ALA, CHP, OSB, RUS
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For the third time in two weeks a major central bank has passed on the opportunity to raise interest rates. First it was the US, then Canada and last week the European Central Bank left interest rates unchanged, potentially for at least a year.
The path to rate normalization for interest rates has no precise target, but a good indicator is the shape of the yield curve. The yield curve is a graphic presentation of interest rates for bond maturities ranging from 30 days to 30 years. After decades of declining interest rates that have little further to decline, even stabilizing at low levels for a long period of time would be positive for markets. A sharp rise would be troublesome.
Last week, yields for 10 US government benchmark bonds, for the second time closed in on the 7 year high of 3%. Then buyers showed up. Once again over a period of years, this marked a high point for interest rates. Interest rates have been rising for short term maturities, but not nearly so much for the longer term. Comments this week focus on the US yield curve and what it indicates when spreads between short term and longer term rates change.
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