Relentless Yield Curve Flattening

Most economists expect the Fed will hike at least twice more this year. If so, portions of the yield curve may invert.

Basis Point Spreads

  • 3-month to 1-year: 36
  • 1-year to 2-year: 23
  • 2-year to 3-year: 15:
  • 3-year to 5-year: 19
  • 5-year to 10-year: 16
  • 1--year to 30-year: 32

If the fed hikes twice more this year, with the one-year yield at 2.11 and the 3-month yield at 1.75, there is little room for anything but inversion or a nearly flat curve if rates on the long end fail to rise.

For discussion of the long bong trend, and Lacy Hunt's law of diminishing returns, please see Relentless Yield Curve Flattening.

Mike "Mish" Shedlock

Comments (7)
No. 1-7
Bam_Man
Bam_Man

The bond market sees the oncoming recession just beyond the horizon and is signalling "FED POLICY ERROR".

JonSellers
JonSellers

I'm in for the "long bong trend". The "Relentless Yield Curve Flattening" also means a relentless bid for long-dated treasuries. Any thoughts on why?

AWC
AWC

To fight the Fed or not? Return on capital, or return of it? Think I'll shorten to less than 5 years here and sit it out a while. Need a break.

AWC
AWC

Good luck to Lacy on that 20 Year D.

AWC
AWC

Maybe the Fed is buying "offing," or maybe they are intent on normalizing. Either way, the risk of continued tightening is there.