Despite continuing calls for a move higher in rates, US Treasury yields have been flat to lower across the curve recently. Let’s start with the short end of the curve. While you could practically set your watch to the pace of rising yields on the 3-month UST for most of 2018, the rise came to a halt late in Q4 as economic data slowed and the equity market declined. Last month’s pivot by the FOMC to pause its rate hiking cycle has only reinforced that trend. For now, 2.5% should be a ceiling.
At the long end of the curve, yields have not only not been rising, but they’ve also been falling. When equity markets bottomed in late 2018, the yield on the 10-year briefly started rising again, but that move higher in yields came to a halt just shy of 2.8%, which had formerly been a support level. As things stand now, the 10-year yield is at 2.65% and not far from one-year lows.
With lower yields at the longer end of the curve, the yield curve (10-year minus 3-month yield) has been flattening dramatically again. At today’s level, the yield curve is barely legal to drink and outside that brief period at the end of last year is at its lowest levels in over a decade. What will it take to get the curve steepening again?