YC2YR 2-10 Yield Spread Weekly Chart; Yield Curve Flattens to One-Decade Low

The flattening yield curve is receiving lots of attention. The 2-10 spread drops to 61 bips the lowest number since October 2007 one decade ago. A flattening yield curve creates angst since it typically foretells an economic recession.

The Federal Reserve plans to hike rates next month and then three more times next year driving the short-end 2-year yield higher. Inflation is not occurring since wage growth is not occurring and economic growth remains stagnant which keeps the long-end yields low. This double-whammy creates the ever-flattening yield curve.

The light blue lines show a falling wedge pattern which predicts a move higher in the spread. Ditto the blue lines for the indicators that are set up with positive divergence wanting to push the spread higher (wider). The spread has also violated the lower standard deviations band so a move higher would be expected targeting the middle band at 0.83% (83 basis points). So just when everyone is screaming from the rooftops that the yield curve flattening will continue to narrow, it will likely instead widen on this weekly basis taking a rest from the slip-slide south during the last few years.

Thus, the spread moves higher via four ways. Either the 2-year yield moves lower with the 10-year yield anchored, or the 10-year yield moves higher with the 2-year yield anchored, or the 2-year yield moves lower and the 10-year yield moves higher at the same time. The fourth way, if inflation appears, would be both the 2 and 10-year yields rising with the 10-year yield rising faster than the 2-year. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.