US 2-year yields are up 15 basis points today while 30s are flat. It's a sign that the market is worried about the Fed over-tightening into next year at a time when inflation is sorting itself out and the economic is slowing.


2s30s didn't invert before the pandemic and haven't since the financial crisis.

What I'm more-focused on than the curve is the top for 2s. I think 2.5% is an interesting level because it's a decent return and the kind of number that will draw in buyers, especially foreign buyers. You lock in a good yield and you're only taking on re-investment risk.

What runs against that is inflation eating up your return (but what are the alternatives?) and the Fed selling. Still, it's not like maturity is so far off in the distance and if you're bearish, re-investment risk shouldn't be a big obstacle.

So I struggle to see 2.5% breaking especially with Evans today saying that should be the top of Fed funds and with the curve pricing 3.0% as the terminal Fed funds top. Alternatively, I can see the case for pushing to 3% but I think we will need to see a few hikes first and see what develops with inflation. Put another way -- we need a catalyst to move meaningfully higher from here.