3. Yield Curve Flatter, Not Steeper in 2014? In 2013, perceived economic well-being coupled with the Fed signaling an intent to slow its asset purchases sent 10-year and 30-year U.S. bonds down much faster than shorter-term bonds (e.g., 1 year, 5-year, etc.). This could be seen in a steeper yield curve. Investors could also profit from the trend via iPath Treasury Steepener (STPP).
In 2014, however, a different picture may be developing. merge. Money has been slowly creeping back into assets on both the long end of the yield curve as well rates-sensitive REITs. In contrast, demand for the shortest end of the treasury curve (e.g., 1-3 years) has been neutral at best. The consequence? The yield curve is stabilizing and may ultimately flatten as the year progresses as yields on shorter-term bonds rise while yieds on longer-term bonds run in place. Year-to-date, iPath Treasy Flattener ETN (FLAT) could be signalling a changing of the guard.