Is the yield curve flattening? Not really but there's a risk that it could, according to a new report from Deutsche Bank. The investment banker issued a note today, saying, "Curve flattening risks are rising. The yield curve has priced in a low probability of Fed rate hikes, even as the risks of tightening are growing. The trade-off between carry versus risk protection is shifting toward the latter. We would not favor trades based solely on their carry. Ahead of the FOMC meeting, we move to a tactical flattening position on the curve slope. We also expect a bounce in swap spreads as receiving pressure eases." If the yield curve flattens it would spell an end to fat mortgage banking profits...
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