Monday, February 26

US 5/30 yield curve inverts for first time since 2006

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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

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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

basis points.

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.

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“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

research note.

“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

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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

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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


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

Andrea Ricci)



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