LONDON/NEW YORK — The US Treasury
yield curve, as measured by the gap between five and 30-year
yields, inverted on Monday for the first time since early 2006,
as a sell-off in the bond market resumed, with short-dated
yields jumping to their highest since 2019.
While parts of the yield curve, namely five to 10 and three
to 10 years, inverted last week, the slide of the gap between
five- and 30-year maturities of the biggest bond market in the
world into negative territory raised concerns the US central
bank’s hawkish approach to tackling inflation might hurt growth.
“That is exactly what the bond market is pricing: that the
Fed’s policy response is going to put the brakes on economic
growth sharply,” said Peter Chatwell, head of multi-asset
strategy at Mizuho Bank in London.
The spread between 30- and five-year US Treasury yields
fell to as low as minus 7 basis points (bps),
moving below zero for the first time since February 2006,
According to Refinitiv data. That spread was last flat at 1.3
The spread has collapsed from a positive 53 basis points at
the start of this month.
The US 2s/10s yield curve, a widely watched recession
indicator, was at 12.9 basis points on Monday,
the flattest since March 2020.
“A confident path toward higher rates should not be
surprising given the size of the inflation overshoot,” Andrew
Hollenhorst, chief economist at Citi, wrote in its latest
“If 2.5% is the neutral nominal rate in a 2% inflation
economy, we see little argument for Fed officials not moving
rapidly to raise rates to at least this level – hence our
expectation of four 50 basis-point hikes.”
US rate futures on Monday priced in a roughly 76% chance
of a half-percentage point tightening at the Fed’s monetary
policy meeting in May. For 2022, the futures market
expects about 208 basis points of cumulative hikes by the Fed.
In the overnight index swaps (OIS) market, the yield curve
between two and 10-year swap rates inverted for the first time
since late 2019 and last stood at minus 4.7 basis
The OIS market also reflects traders’ rate expectations and
like Treasuries, has a yield curve that plots interest rates
from short-term to long-term maturities.
Some analysts say the OIS curve is a better indicator of
incoming recessions than Treasuries. The OIS looks at the short-
and long-term path of the fed funds rate, the purest risk-free
rate banks charge each other for overnight loans to meet
reserves required by the US central bank.
The five-30 year OIS curve had already inverted earlier in
March and various parts of the forwards curve have also
With bond yields continuing to rise after a jump on Friday,
the two-year Treasury yield, which is sensitive to interest rate
expectations, rose as high as 2.414%, its highest
since mid-April 2019. It was last up 2.2. basis points 2.323%.
US benchmark 10-year yields pushed above the 2.5% marker
to 2.55%, hitting their highest since April 2019,
but were last down 3 basis points at 2.460% .
The gap between five- and 10-year yields fell to around
minus 9.3 basis points, moving further into inverted territory
March 28 Monday 10:08AM New York / 1408 GMT
Price Current Net
Yield % Change
Three-month bills 0.5375 0.5457 0.008
Six-month bills 0.9875 1.0061 0.020
Two-year note 98-118/256 2.3235 0.024
Three-year note 97-182/256 2.5573 0.020
Five-year note 96-228/256 2.5512 -0.024
Seven-year note 95-214/256 2.5346 -0.041
10-year note 94-252/256 2.4493 -0.044
20-year bond 94-248/256 2.7037 -0.057
30-year bond 93-208/256 2.5469 -0.057
DOLLAR SWAP SPREADS
Last (bps) Net
US 2-year dollar swap 25.50 0.50
US 3-year dollar swap 13.00 -0.25
US 5-year dollar swap 7.25 0.25
US 10-year dollar swap 8.00 0.25
US 30-year dollar swap -18.50 -1.50
(Reporting by Dhara Ranasinghe in London and Gertrude
Chavez-Dreyfuss in New York; Additional reporting by Yoruk
Bahceli; Editing by Emelia Sithole-Matarise, Mark Potter and