Five-Thirty Year Yield Curve: Key Indicator for Economic Trends and Equity Performance

Bloomberg Surveillance · December 23, 2025 · Listen to Original Episode →

Original Title:

TL;DR

The five-year to thirty-year Treasury yield curve (5s30s) is the most effective measure of the curve, capturing sensitivity to Fed policy while reflecting broader economic trends beyond short-term distortions.
Active ETFs offer a strategic advantage over passive ETFs by aiming to outperform benchmarks, enabling the construction of stronger, more tailored investment portfolios.
Enterprise AI, as demonstrated by AWS and Amazon's advertising transformation, can convert resource-intensive marketing processes into globally scalable, autonomous systems for real-time optimization.
Adobe Acrobat Studio's AI assistant can condense hours of research into instant key insights and streamline proposal creation, significantly accelerating deal closure and improving workflow efficiency.
Dubai has evolved from an early-stage boomtown to a mature destination city, indicating a significant shift in its economic and cultural landscape.
Default risks in fixed income are currently low, and interest rates are not expected to rise to levels that would critically undermine equity markets in the near term.

Deep Dive

The core insight from this discussion is that the five-year to thirty-year yield curve represents the most telling indicator of the bond market's health and future economic trends, offering a more nuanced perspective than shorter-term measures influenced heavily by central bank policy. This perspective is crucial for understanding market sentiment beyond immediate Federal Reserve actions and for anticipating longer-term cyclical shifts.

Steven Major of Tradition highlights that while the two-year yield is primarily a reflection of the Federal Reserve's policy, the five-year to thirty-year segment captures a broader economic narrative. This longer segment reflects cyclical trends and data-driven expectations for the future, making it a superior measure for assessing overall market sentiment and potential risks. The implication is that focusing solely on Fed-driven shorter yields can lead to an incomplete understanding of market dynamics, potentially missing critical signals about longer-term economic trajectory. Furthermore, Major notes Dubai's evolution into a true destination city, indicating a significant shift in its global standing beyond its earlier, more nascent boom phase.

Jim Carron of Morgan Stanley provides a reassuring outlook on fixed income, suggesting that while interest rates might drift slightly higher at the long end, they are unlikely to reach levels that would destabilize equity markets. He anticipates that the bond market will not impede equity performance in 2026. This suggests that the perceived risks in fixed income, such as default rates, are currently manageable and that the interplay between bonds and stocks is likely to remain favorable for equities. The consequence of this assessment is that investors can maintain a degree of confidence in both asset classes, with bonds acting as a stable backdrop rather than a headwind for stock market growth.

Ultimately, the discussion emphasizes the importance of looking beyond immediate policy signals to understand the deeper currents within the bond market. The five-thirty year yield curve is presented as the key diagnostic tool, offering insights into the broader economic landscape and suggesting a continued positive environment for equities, tempered by the understanding that rates may see modest increases.

Action Items

Audit yield curve: Analyze the 5-30 year spread as the primary indicator for market trends (ref: Major).
Track interest rate impact: Measure correlation between back-end rate movements and equity market performance (ref: Caron).
Evaluate default risk indicators: Monitor credit spreads for material widening to assess systemic financial health (ref: Caron).
Analyze Fed policy influence: Isolate the impact of the Fed on the 2-year yield to understand its distinct drivers (ref: Major).

Key Quotes

"If you want one number on the curve, it's probably five to 30 year. You can ask Jim next, send him my regards, but Jim will have an idea as well. I think two's tens can be quite distorted because two's is about the Fed. That is as simple as that. Two's is not a credit risk story. It's not a sovereign risk story. It's not about auctions or anything really. Two's is safe. Two's is about the Fed."

Steven Major argues that the two-year Treasury yield is primarily an indicator of Federal Reserve policy, rather than broader economic or credit risks. Major explains that this yield is "safe" and directly reflects the Fed's actions and intentions.

"Tens starts to be a bit more cyclical, a bit more about the data, and looking into into into lot into longer term sort of trends. I think five thirties is your best measure of the curve because you're capturing something that is close to where the Fed is and sensitive to rates, but not quite as sensitive to twos. And I think it captures the whole story. Five thirties."

Steven Major further elaborates on yield curve indicators, suggesting that the ten-year yield is more influenced by economic data and long-term trends. Major proposes the five-year to thirty-year spread as the most comprehensive measure of the curve, as it balances sensitivity to Fed policy with broader economic factors.

"Default risks are relatively low. We're not really seeing a materially, a material widening of of of default risks or increase in in default risks. Um, interest rates, while they may drift a little bit higher in the back end, they don't seem like they're moving out of control. You know, they might go a little higher, but but certainly not to levels that I think will will destroy the equity markets."

Jim Carron of Morgan Stanley assesses the current fixed income landscape, stating that default risks are not significantly increasing. Carron believes that while interest rates might rise slightly at the longer end, they are unlikely to reach levels that would severely harm equity markets.

"So I think 2026, at least from the bond market's perspective, I don't think the bond markets going to get in the way of equities."

Jim Carron expresses a forward-looking view on market dynamics, indicating that from the bond market's standpoint, 2026 is projected to be a year where fixed income will not hinder equity performance. Carron's analysis suggests a positive outlook for equities, unburdened by bond market pressures.

Resources

External Resources

Books

"Single Best Idea" - Mentioned as the title of a podcast series.

Articles & Papers

"Health Discovered" (iHeart) - Mentioned as a podcast discussing multiple sclerosis.

Tools & Software

Adobe Acrobat Studio - Discussed for its PDF capabilities, including AI assistance for research and proposal creation.
AWS AI - Referenced as a technology revolutionizing marketing operations with intelligent, autonomous systems.
Cisco Duo - Mentioned for its end-to-end phishing resistance capabilities.

People

Jim Carron - Referenced as an iconic figure at Morgan Stanley, providing insights on fixed income and bond markets.
Steven Major - Mentioned as a figure from Tradition, based in Dubai, discussing market dynamics and the five-year yield.

Organizations & Institutions

J.P. Morgan Asset Management - Mentioned as a global leader in active fixed income ETFs.
Morgan Stanley - Referenced as the institution where Jim Carron works.
Tradition - Mentioned as the organization where Steven Major is based.
HSBC - Mentioned in relation to Steven Major.
Compassion International - Referenced as an organization that provides aid to children facing poverty and hunger.
iHeart - Mentioned as America's number one podcast network.

Websites & Online Resources

J.P. Morgan dot com slash get active - Referenced for learning more about active fixed income ETFs.
omnystudio.com/listener - Mentioned for privacy information.
AWS dot com slash AI slash our dash story - Referenced for discovering the Amazon ad story.
Spectrum dot com slash free forever - Mentioned for learning about free home internet offers.
Duo dot com - Referenced for learning more about Cisco Duo's phishing resistance.
Compassion dot com - Mentioned for sponsoring a child and learning more about the organization's work.

Podcasts & Audio

Bloomberg Surveillance - Mentioned as the podcast name.
Single Best Idea with Tom Keene - Referenced as a podcast series featuring conversations with industry experts.
Odd Lots - Mentioned as a podcast that listeners might also be interested in.
Everybody's Business - Mentioned as a podcast that listeners might also be interested in.
Health Discovered - Mentioned as a podcast discussing multiple sclerosis.

Other Resources

Active ETFs - Discussed as an investment strategy aiming to beat benchmarks.
Passive ETFs - Contrasted with active ETFs, described as settling for benchmarks.
Multiple Sclerosis (MS) - Discussed in the context of health disparities and diagnosis challenges.
Fixed Income - Referenced in discussions about bond markets and default risks.
Five-year yield - Mentioned as a key number to look at on the yield curve.
Two's tens - Discussed as a potentially distorted measure of the yield curve, primarily reflecting the Fed's actions.
Five thirties - Presented as a better measure of the curve, capturing sensitivity to rates without being overly influenced by the Fed.
Default risks - Discussed in relation to the bond market and their current low levels.
Home internet - Mentioned in a promotional offer from Spectrum.
Repatha (evolocumab) - Referenced as a medication that lowers LDL-C and heart attack risk when used with a statin.
LDL-C (bad cholesterol) - Mentioned in relation to heart health and the effectiveness of Repatha.
Phishing resistance - Discussed as a security feature offered by Cisco Duo.
Poverty, hunger, illness, lack of opportunity - Described as challenges faced by children globally.