The United States government is planning to sell a record amount of treasury bonds next week and traders are preparing by seeking higher returns. Two year treasury yields have been declining while ten year treasuries have been staying flat or rising slightly of late. As this continues to happen we are seeing what is often called a steep yield curve.

The so-called yield curve is currently at 265 basis points, while the long-term average for that curve has been around 135 or 140 basis points. Basically a steep yield curve means that treasury investors are looking to find higher returns and are seeking protection from inflationary risks and in this case they are also preparing for a huge amount of supply from the government.

Is the treasury yield curve steepening good for the overall economy and the stock market? Most would say yes since that generally means that investors are looking for a nice rebound in the economy and do not wish to lock their money up in assets such as bonds, certificates of deposits, or other lower yielding investment products. It means that investors believe that they can do better than these yields, which is a positive sign.

Watch the treasury yield curve over the next week as the government brings $81 billion of notes and bonds to the market next week. The steepening may continue, and some are actual predicting that we could see some records on the level of how steep the treasury yield curve is, but that may well be largely because of the huge amount of supply coming in.

If you haven’t kept an eye on the treasury yield curve before now, you should probably start doing so. Today’s very steep yield curve is a good sign for the economy, but things can change quickly so make sure you are paying attention.