Yield curves flatten as case for looser policy builds

The flattening of yields curves over recent weeks has raised fears of a sharp economic slowdown to come. Central banks are unlikely to be led by the views of bond markets, not least because their actions and comments have driven at least part of the change. But the flatness of yield curves could have negative effects on banks’ profitability and lending, adding to downside risks to growth in the advanced economies. This is another reason to think that monetary policy will typically be looser than markets or central banks themselves assume over the next year or so.