On the yield curve’s bear steepening in a period of cyclically low credit spreads

I was off last week when the Fed raised rates a quarter percentage point. But I promised to comment on the Fed's action when I returned. I am doing so now.

Before I left, I wrote a piece about two weeks ago on the steepening of the yield curve. And even though this is considered bearish, over the near-term, I think it's a bullish signal. It's only when it impacts credit that bear steepening becomes bearish. Some thoughts below
Defining bear steepening
What I said last time was that rising rates are considered bearish irrespective of whether the yield curve is flattening or steepening. As long as short-term interest rates are rising, the curve dynamic gets the moniker 'bear' for either bear flattening or bear steepening. But these two situations are telling us very different things.

When ...


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