Anyone remembers the "crazy inverted yield curve"?
Well, it looks to be coming again. I made a mention to it already last month and we are continuing to see the curve flatten further this week. Looking at Treasuries, 2s10s is now down to 28 bps and that is the narrowest in 2 years. As compared to the linked post above, that is down about 12 bps. 2-year yields are at 1.52% and 10-year yields at 1.80% currently. It seems to just be a matter of time before it flattens completely.
An inversion of the 2s10s spread is typically an accurate indicator of a recession. The question now is, what may be the cause of that? Stagflation? Or a policy mistake by the Fed?
There will be plenty of factors to be scrutinised as such in the months ahead but if the signs are worth anything, it is that troubling times may be coming. In turn, expect markets to slowly focus more and more about the yield curve again in the weeks/months ahead.
