Chart of the week: Yield curve flattens

  • U.S. government bonds pulled back this week as U.S. political concerns drove investors toward safe-haven investments. The U.S. 10-year yield declined to 2.2%, the lowest level since late April and the largest one-day decline since the U.K.’s decision to leave the European Union last June.1
  • The yield premium between the 10-year Treasury note and the two-year note fell to 0.98% – the lowest level since late October immediately preceding the U.S. presidential election. A declining premium is known as a flattening yield curve and usually indicates a reduced outlook for U.S. economic growth and inflation.
  • The move came in a week that saw U.S. stocks pull back and the CBOE Volatility Index spike amid growing concerns over the Trump administration’s ability to deliver on tax reform and other pro-growth initiatives.2
  • While investors appear to still be pricing in a rate hike in June and modestly higher growth and inflation expectations over the short term, their longer-term expectations appear to be fading. As indicated by the flattest yield curve in over six months, bond investors still do not anticipate faster economic growth or a significant uptick in inflation over the long run.

1 Federal Reserve Bank of St. Louis,
2 Federal Reserve Bank of St. Louis,

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