US yield curve flattens as investors brace for rate rises
In the last 12 months, there has been a significant flattening of the U.S. yield curve as investors have anticipated continued tightening by the Federal Reserve. As a result, the five-year part of the U.S. yield curve is relatively attractive. While further yield curve flattening could occur, much of this is discounted in the forward markets already. Increasing issuance of U.S. Treasury bonds combined with Fed tightening could also put pressure on longer dated maturities. Thus, managers should position portfolios for yield curve steepening by being long the five-year part of the curve and underweight 10-year and 30-year bonds.