"Yield Curve, Expecting Base Rate Cut"

Daishin Securities interpreted on the 20th that the yield curve is expecting a base interest rate cut as a medium- to long-term trend.

Since the recent unusual cycle of U.S. base interest rate hikes, the inversion phenomenon between short- and long-term interest rates has become entrenched, and compared to the past, it has not received much attention in terms of its predictive power for the economy.

Gong Dong-rak, a researcher at Daishin Securities, said, "As the U.S. economy continues on a generally solid path without concerns about a special landing, questions have even arisen about whether the yield curve is a leading indicator for the economy, causing it to lose public interest. Nevertheless, the yield curve still retains its significance as an indicator suggesting the bond market’s expectations regarding the direction of the monetary authorities’ base interest rate decisions."

He added, "When comparing the U.S. short- and long-term interest rate spread with the base interest rate, the spread narrowed during periods of rate hikes, while it widened during periods of cuts or expectations of cuts. The current trend in the short- and long-term interest rate spread can be evaluated as expecting a base interest rate cut." Furthermore, he noted, "The periods when the short- and long-term interest rate spread shifted from a trend of narrowing to widening were times when the base interest rate hike cycle was ending."