William Lee, Chief Economist and Managing Director of Global Economic Advisors, said the US yield curve is flattening and that advanced economies are likely to attract global capital flows in the period ahead.

In an interview with CNBC-TV18, Lee discussed a range of topics shaping the global financial outlook, including US Treasury yields, global credit demand, the growth of private credit, capital flows into emerging markets, and the Japanese yen carry trade.

Commentary on the yield curve comes amid sustained market attention to the shape of the US Treasury curve. The yield curve, which plots the yields of US Treasury securities across different maturities, is closely watched by investors as an economic indicator; an inversion of the curve between short- and long-dated yields has historically been associated with recession concerns, while a flattening reflects a narrowing spread between short- and long-term rates.

The topics Lee addressed have been prominent in global markets. US Treasury yields are a global benchmark for borrowing costs, and movements in Japanese interest rates affect the yen carry trade, a strategy in which investors borrow in low-yielding yen to fund positions in higher-yielding assets elsewhere. The yen carry trade drew wide attention in 2024, when shifts in Japanese monetary policy expectations contributed to episodes of volatility in global asset prices. Private credit, another topic Lee touched on, has grown into a substantial segment of global lending in recent years, with funds extending credit directly to borrowers outside traditional bank and public bond markets, a trend regulators and policymakers have flagged for monitoring. Emerging-market capital flows, meanwhile, are often sensitive to shifts in US rates and the strength of the US dollar, and a scenario in which capital gravitates toward advanced economies would carry implications for EM funding conditions.

The interview was published by CNBC-TV18 Markets (original article).