US yield curve steepest since Feb on tax-cut extension

The extra yield Treasury investors demand to hold 10-year notes over 2-year securities touched the widest since February on speculation an extension of tax cuts will spur growth and increase deficits.

The benchmark 10-year yield rose this week to the highest level in seven months as retail sales advanced in November more than economists forecast and the Federal Reserve said the recovery is continuing. The US economy grew at a faster pace in the third quarter, a report is forecast to show next week.

“The market will be subject to selling,” said Brian Edmonds, head of interest rates in New York at Cantor Fitzgerald LP, one of the 18 primary dealers that trade directly with the Fed. “It’s hard to think of anything good for bonds coming out of the tax-cut extension. Something has got to give.”

The difference in yield between 10- and 2-year notes increased for a third week, rising to 272 basis points yesterday, or 2.72 percentage points, from 268 basis points on December 10, according to Bloomberg data. The spread touched 289 basis points on December 15, the widest since February 23.