Just had a one-hour call with an institutional client focused on today’s post about Yield Curve. In summary, it is really simple – the wider the spread between the 2-year and 10-year U.S. Treasury yields, the more lenders make on the loans. If the lending becomes much more profitable, banks are more willing to take more risk. The current spread in the 2-10 curve is 43 basis points, and the economy did not emerge from recession until that spread was over 200 basis points (Figure 1).
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