Doesn't it make a difference if the yield curve is wide because the short end is artificially depressed vs. natural market forces? Doesn't it reduce the possibility of gains when the curve flattens because the short end will go up instead of the long end coming down?
I don't read the WSJ everyday and I assume they have had articles on the yield curve recently...in today's paper, there's a prominent one...first few paragraphs:
"Bonds Are Signaling a Stronger Recovery"
"A closely watched bond-market measure of investor optimism hit a record Monday, amid signs the U.S. economy's recovery is strengthening.
That measure is the yield curve -- the difference between short-term and long-term interest rates on government bonds. That number is at its highest level ever, surpassing the record set in June, and signals that investors are expecting a stronger economic turnaround ahead.
The milestone comes amid a broad sell-off in government bonds, as investors shift money into riskier assets like stocks in anticipation of stronger growth. Last year, investors dumped stocks and sought the safety of government bonds amid the financial panic. That drove up the prices of government debt, and thus drove down the yields on some to record lows.
The interest-rate development is good news for banks, which normally borrow at short-term rates and lend at long-term rates. The bigger the difference, all else being equal, the bigger their profit. Higher profits mean banks can refill their coffers, which have been drained by bad debts, and return to health."
Its pretty darn obvious banks will be making a fortune with this kind of yield. But people keep focusing on the news and not the fundamentals. Scared stiff by the likes of C, even though this is probably one of the best buying opportunity for a while to come.