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More Yield Curve Flattening Today

|Includes: iShares 20+ Year Treasury Bond ETF (TLT)

Investors in iShares 20+ Year Treasury Bond (NYSEARCA:TLT) may have noticed a gap up in share price this morning. Yields on 30-year U.S. Treasury bonds dropped, even as the Federal Reserve continues to signal rate normalization. Even more striking is the continuing pattern of the yield curve flattening.

At the beginnining of 2017, the one month and one year Treasury rates were 0.52% and 0.89%. As of yesterday, those rates had increased to 0.85% and 1.22%.

The longer duration Treasury rates, at 10 years and 30 years, have actually dropped from 2.45% and 3.04% to 2.19% and 2.79%.

The yield curve is flattening. Today's action in bond markets is extending this trend.

Does this mean a recession is imminent? Some experts say no. A flattening yield curve corresponds to an expansionary period. However, they also point out that investors should be nervous when the yield curve inverts (longer rates drop below shorter rates). I'd argue that you need to worry when yields begin to move at a rapid pace and rates at the long end of the curve go in the opposite direction of Federal Reserve policy.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.