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Bull Steepening Watch – Is lower yields really what risk assets want?

Nothing comes for free, and a bull steepening of the yield curve is typically not great for risk assets. Will this time be different? Markets better hope so.
2023-12-14

Markets are pricing in heavy cuts for next year as inflation keeps coming in soft, making a soft landing the base case for the bulls, but everything comes at a price.

But how are assets likely to perform if the market narrative is correct and yields will indeed come down in a continued bull-steepening fashion, which in our view is the most likely scenario in H1 2024?

We have pulled out some of our cross-asset beta studies from our data-library to provide you with an overview of how assets perform during various yield curve regimes. Keep in mind that the bull-steepening regime historically has rhymed fairly well with recession, but markets are pricing in a substantial bull steepening of the curve – without a recession!

Let’s run through each asset class to see where to put your eggs if a bull-steepening of the yield curve continues into 2024. Prepare for loads of charts and data coupled with short and concise points!

Nothing comes for free, and a bull steepening of the yield curve is typically not great for risk assets. Will this time be different? Markets better hope so.

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