MARKET TALK: Danger Lurks As Yield Curve Steepens

A steeper curve has been the logic trade for those banking on an improving US economic data and budding fears on inflation. The 2-10yr yield spread has widened 0.11 percentage point today to 1.89, the most since October. Yet the steepening trade could be jolted if the growth outlook generates a broad shift among investors to bets that the Fed may hike rates before its projected late-2014 time frame. A change of the Fed outlook could spark a selloff in short-dated Treasurys like the 2-year note, causing the curve to flatten some.