"Talk of the flatter yield curve presaging recession continues to run rampant among the chattering classes,” Steve Blitz, chief US economist at TS Lombard, wrote in a research note. And it’s not just the more closely-watched yield gaps, like the spread between 10- and two-year notes. What counts is not whether the curve is flat but whether it’s negative, and the negative curve that counts most is the spread between the yield on two-year Treasury notes and the federal funds rate, Blitz writes. "We have long made the point that the shape of the curve is not a talisman. It works because when short-term money earns more than lending, the flow of loanable funds moves away from credit."
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