Wealth Outlook 2024 - Slow then grow

70 Our top 10 high conviction potential opportunities FIGURE 16 Already close to a record-long inversion – US Treasury yield “curve” showing the % spread between 10- and 1-year Treasury yields -400 0 2020 2010 2000 1990 1970 1960 Basis points 400 10yr UST less 12-month US T-Bill yield US Recession 1980 Source: Bloomberg as of November 22, 2023. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance. Past performance is no guarantee of future results. Real results may vary. 10. Normalization of the US yield curve The US Treasury 1-year/10-year yield curve has been positively sloped in 82% of all months during the past 60 years. It can steepen on higher long-term rates and/or lower short rates. The longest period of an inverted US yield curve has been 20 months. The 10s/1s US Treasury curve has already been inverted for 15 months ( FIGURE 16 ). Strategies with a duration of two years can be constructed and can potentially earn a high current cash yield. Using similar tools, market opportunities could enhance current Treasury yields or tailor investments for higher-yielding entry points. Some of the conditions that might steepen the curve – either a recession or an acceleration in inflation – would likely be adverse for equities markets. For suitable clients, rate strategies may also serve as a risk hedge for equities or credit. The risk of implementing such a rate strategy is that the curve remains inverted or does not steepen sufficiently beyond the initial entry point of the strategy to result in a favorable gain, and so the investment in the strategy is reduced in value.