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US T-yield curve flattening continues, spread hits fresh decade low

  • The yield curve continues to flatten on weak inflation expectations. 

The treasury yield curve flattening continues with the spread or the difference between the US 10-year yield and the 2-year yield falling to 65.5 basis points; the lowest level since Oct. 31, 2007.

It is widely believed that increased expectations that the Fed will continue to tighten interest rates is yielding a flatter yield curve (2-year yield spikes on rate hike bets). However, a bigger reason for the flatter yield curve is the sharp decline in the US 10-year yield.

Long-term inflation expectations as represented by the 5-year, 5-year forward inflation expectations, and the US 10-year breakeven inflation rate is showing no signs of life, The data released earlier this week showed the consumer prices barely rose in October.

Curve flattening is usually seen as bearish for the US dollar and vice versa.

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