(Reuters) – A fast pace of monetary policy readjustment to curb rampant inflation could lead to a flattening of the U.S. Treasuries yield curve, said Larry Fink, chief of the world’s biggest asset manager, BlackRock Inc.
“I think the yield curve is going to be flattening, you know, and I can even see if the Federal Reserve is very aggressive, I can see a, you know, a negative yield curve”, Fink told CNBC in an interview on Tuesday, according to a transcript.
The shape of the yield curve reveals investor expectations for U.S. growth and monetary policy. A hawkish stance by the U.S. Federal Reserve planning sooner-than-expected rate increases has pushed up short-term rates, flattening the curve.
A negatively sloped, or inverted curve, is a phenomenon that is considered bad news for the short-term economic outlook and has presaged past recessions.
“The shape of the yield curve is going to be the critical issue that’s going to determine the economy,” Fink said.
The chief executive of BlackRock, which oversees $10 trillion as of Dec. 31, added that he expects inflation to be higher and the Federal Reserve to be “aggressive” for the next two years.
Financial markets are expecting that the U.S. Federal Reserve could raise rates as many as four times this year after post-pandemic stimulus measures that boosted the U.S economy but also caused inflation to rise.
On Tuesday, two-year U.S. Treasury yields, which track short-term interest rate expectations, rose above 1% for the first time since the start of the pandemic, further eroding the yield advantage that longer-dated securities usually hold over shorter-dated ones.
The yield curve between two- and 10-year notes earlier flattened to 81 basis points, the smallest yield gap since Jan. 3.
(Reporting by Davide Barbuscia; Editing by Mark Porter)
