Going back to the 1980s, every time the U.S. Treasury curve steepened from deep inverted levels, a U.S. recession along with an equity price correction has followed. The chart below highlights the instances when the 2s10s curve has breached above par preceding a period of inversion. The red vertical windows signal U.S. recessions
The 2s10s curve remains inverted, as the 2-year yield holds a 9.308bps premium over the 10-year yield on Tuesday session. However, last week, the rate differential rose above par for the first time since mid-2022. The steepening comes as U.S. labour market data points to a further deceleration of economic activity. The following months will be key as the Fed may not rely on a single data point and while a rate cut is priced in, the FOMC could signal a less dovish path if U.S. data turns volatile
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