In my 50-plus years of running money, I’ve noticed that the biggest market moves come from factors that have gone unnoticed – and right now, there’s a doozy lurking under the table.
Amid all the tariff tumult of the past few months, the global yield curve has been quietly re-steepening. Also note that the previously long-watched US-based yield curve – which investors lately (and wrongly) have been ignoring – has been doing the same.
So what’s a yield curve, again? It’s a graph showing government bond yields from 3-month to 10-year, left to right. When long-term rates top short rates, the curve slopes upward — and is deemed “steep” and historically bullish. When short-term rates top long, it is “inverted”— an historically fairly reliable though imperfect recession warning.
Why is that? Like a dashboard indicator, the yield curve usually predicts bank lending trends. Banks use short-term deposits to fund long-term loans — pocketing the spread. Borrow at one rate, lend at a higher rate. Steep curves mean bigger profits, so banks lend eagerly, spurring growth.
Meanwhile, inverted curves — when short-term rates top long — shrink loan profitability. Banks lend less. Since economies rely hugely on loans to finance growth — from building inventory to funding expansion — GDP gets squashed.
For decades, the US yield curve rarely misfired, becoming a lodestar for investors. But like assuming a car’s dash is reality, they ignored its “under the hood” function — the lending. It worked until it didn’t.
After global stocks’ 2022 decline, yield curves inverted globally. Recession fears surged. Investors gnashed. Yet lending grew. US, eurozone and global GDP expanded. Pockets of contraction like Germany arose but were rare. Stocks bulled upward.
Investors were befuddled. The curve remained inverted in 2023 and through most of 2024, with stocks rising, GDP growing. Pundits scratched their heads, then got bored, ignoring and deeming it “broken.” It seems they never asked: Why did it “break”?
Under the hood, banks held tons of ultra-low-rate, COVID-era deposits. In 2020, US bank deposits ballooned 20.8% from the year earlier and another 11.7% in 2021. They stayed elevated through 2022 and 2023, echoing global trends.
In other words: Banks didn’t need to borrow to lend. They needn’t compete for deposits by raising deposit rates. That stash of low-cost deposits kept lending profitable even as the Fed hiked to highs of 5.5% alongside other central banks globally.
Now, unseen, yield curves flipped positive, aiding global loan profits. This stems from short-term rate cuts (most heavily overseas – and rising long-term rates (which most wrongly fear, and which are also bullish).
Money flows globally between most nations, so I always monitor a GDP-weighted global yield curve. Last July, it was down 0.55 percentage points — inverted. A few months before that it was down nearly a full point. Now? It has flipped to positive 0.50 points — a quiet, nearly 1.5-point lending boost in slightly over a year. It is both bullish and explains recent trends.
America’s curve improved but remains basically flat – down 0.07 points. But Britain flipped from down 0.99 points a year ago to positive 0.35 points now. Continental Europe’s shifted more — from down 0.47 to up 1.03!
Stocks show it matters: Regionally the MSCI Europe clocked early new highs and sits up 22% year to date. The non-US trounces America this year.
Steeper curves favor value stocks (like the eurozone and UK’s) over growth stocks (which dominate the US). Eurozone and UK Financials—up 52% and 33%, respectively—quietly lead in 2025, trouncing US Tech’s 10%. Why? A bank profit turbocharge! Europe’s value-heavy Industrials lead, too. They need lending to finance growth.
That most observers still ignore the curve is vital. It means stocks haven’t yet fully priced in this growing, bullish power. Expect it to help drive stocks higher here and to continue doing the same throughout Europe, the UK and most emerging markets.
Ken Fisher is the founder and executive chairman of Fisher Investments, a four-time New York Times bestselling author, and regular columnist in 21 countries globally.
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