‘US recovery to be longest in history’


The US economic expansion will stretch into the 2020s and a flattening yield curve is normal and unlikely to invert soon, according to US investment manager Payden & Rygel.
The global economy looks on firm footing across the board, with unemployment rates trending lower and inflation rates remaining well behaved, said Brad Boyd, senior vice president at the Los Angeles-based firm which has $115 billion in assets under management. The yield curve flattening is not an issue and can stay that way for a long period without inverting, he said at an investor briefing in Sydney.
“The US recovery can go on and on,” Boyd said. “Recoveries don’t die of old age, they don’t on average have to end after 10 years. Australia is the poster child of economies continuing to expand,” he said, referring to the nation’s 27 years of uninterrupted economic growth. “We think the US recovery will be the longest in history.”
Debate about whether a flatter yield curve foreshadows a recession in the world’s largest economy has preoccupied investors this year as the Federal Reserve continues on its path of raising interest rates. Payden & Rygel’s views clash with those of Guggenheim Partners, the $265 billion investment firm that tips a US recession to start in early 2020 and believes investors shouldn’t ignore the flatter curve.
“We are constructive on the global economy for the next several years,” Boyd said. “The trigger for a recession has been actually an inversion, not yield curve flattening. You can have lo-ng periods of growth when cur-ves are flat, but not yet inverted.”
Payden & Rygel predicts the US cycle will continue into the 2020s and doesn’t see a recession unless the three-month to 10-year yield curve inverts, according to a presentation. It is normal to see a flatter yield curve as the Fed tightens monetary policy and the manager expects higher rates across the curve.
The benchmark 10-year Trea-sury yield has climbed over 70 basis points to 3.12 percent this year, while that on the 2-year equivalent is up almost 100 basis points to 2.85 percent. The gap between the two shrunk to an 11-year low of 19 basis points on August 24 before rebounding to about 27 basis points.

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