U.S. Treasury yield curve flattest in 11 years, moving one step closer to inversion

A slide in long-dated Treasury yields Wednesday helped to flatten the yield curve, narrowing the spread between the 2-year note and the 10-year note to its tightest since August 2007.

A narrowing spread between yields for short-dated bonds and their long-dated peers tends to signal investors’ fears over the economy’s health.

Economists worry that a negative spread, or an inverted curve, could serve as a precursor to a recession, though investors say it’s unclear when an economic downturn will actually transpire after the bond market signal is triggered.

The 10-year Treasury note yield












TMUBMUSD10Y, +0.80%










  fell 4.7 basis points to 2.826% Monday, while the 2-year note yield












TMUBMUSD02Y, +0.64%










  was down 2.4 basis points to 2.596%, according to Tradeweb data. That helped to narrow the yield gap between the two maturities, one of the most popular measures of the yield curve’s slope, to 22.80 basis points, or 0.228 percentage point.

See: Here’s when the yield curve actually becomes a stock-market danger signal

Analysts say the yield curve’s predictive powers come from how it reflects the relationship between monetary policy and the economy.

When the Federal Reserve raises interest rates, the move pushes up short-term bond yields much faster than long-dated yields can react, flattening the curve. Moreover, higher interest rates can keep long-dated yields anchored if market participants think tighter credit conditions will bring an end to the economic expansion.

Read: The U.S. economy is roaring, but the yield curve is flattening. What gives?

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