In all economic cycles, the market gives signals about its expectations for the state of the economy in the short, medium and long term, being naturally simpler to anticipate movements in the long term when it is for the recovery, while in the doors of a recession the short term becomes more obvious, given that the size of the correction is usually uncertain, hence that when the economy tends to fall, rates retreat but at different rates, with short-term rates incorporating cheaper times of money immediately into the whereas long-term ones are more protected when falling. Conversely, when there are indications that the economy may recover long-term rates, they give the first sign, since what is at stake is not whether it will recover, but when it will recover, so the short term makes it more uncertain, resulting in an increase in spreads between the extreme maturities.
At this stage of the cycle, we are in the presence of the second case I have mentioned, with the rates of 30-year US Treasury bonds rising much more than those of 5 years, which increased the spread to 1.45%, the highest figure since the 2016 elections when Donald Trump won the White House seat. Of course, nothing guarantees that the biggest economy in the world will be better in 2 or 5 years, but investors are counting on the $1.9 trillion stimulus package proposed by Joe Biden, which will be followed by some smaller ones in coming months, which will include the strategy from the new president, such as the intention to invest in the country’s infrastructure, amounts that are raising market expectations about an increase in inflation, which consequently results in an increase in interest rates and in the end line may push EUR/USD to par in the medium term.
