According to Mike Howell of CrossBorder Capital's managing director, "A steepening yield curve in almost every occasion is a response to improved economic times. Effectively the fixed income market is beginning to discount a strong economic upturn in the next half a year."
After the statement of Fed Chair Ben Bernanke last week suggesting a decrease in the central bank's bond buying, US treasury yields stroked its highest during a 22-month period.
There was also an increase in real interest rates, most likely resulting to the start of borrowing and spending by companies, according to expectations. With a lot of cash after the financial crisis, companies were expected to renew their spending for business expansion.
According to Howell, "The change in real interest rates means big capital spending is coming back and return on capital is beginning to increase again." In addition, a better return on investment rate was also expected as higher inflation-adjusted rates were likely pointing towards an improving economy.
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