Chart of the week
Yield Curve Slope (bps): 30-Year Yield Minus 2-Year Yield.
This chart depicts the slope of the US Treasury yield curve, measured as the difference between the 30-year and 2-year yields. The first quarter of 2018 ended with the curve at its flattest slope in more than a decade, and well below its 20-year average.
Over the past year, the 2-year yield has risen 100 basis points to 2.27%, while the 30-year yield fell by five basis points to 2.97%.
Its proximity on the curve to the overnight fed funds rate makes the increase of the 2-year yield easy to understand. At the other end of the curve, however, the stubbornness of the 30-year yield to move higher is more puzzling, especially given the combination of the Fed’s balance sheet normalization and the Treasury’s higher rate of issuance.
A flatter yield curve is often associated with a weaker economic outlook. It’s perhaps no coincidence that the curve slope is trending lower just as equity market volatility is pushing higher. To the extent this yield curve flatness represents more heightened volatility ahead, investors may do well to take extra care in managing portfolio risks.
Unless otherwise noted, data is sourced from Bloomberg.
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