BofA states U.S. yield curve will normalize after Fed pivot

Bank of America (BofA), one of the world’s largest financial companies, continues to expect the Fed to change its monetary policy course. BofA consider it will happen despite Fed officials supporting the continuation of tight policy in 2023 to curb exceptionally high inflation.

Aggressive rate hikes that have been delivered throughout this year, have caused an inversion of the yield curve. The essence of this phenomenon is that short-dated yields exceed yields of similar securities with longer maturities, and this time it began in the middle of the year. Such an inversion is always a clear indication of an approaching economic downturn, as proven by history.

BofA is now expecting to observe lower yields after the Fed starts to ease its monetary policy. The company also forecasts that flatter curves will also be noted in this case, and bonds of both types, two-year and ten-year ones, will trade at 3.25% by the end of the next year. The yield curve inversion is projected to disappear only by 2024.