Expert insight

What the yield curve is—and isn’t—telling us

April 04, 2022

Recession isn’t a foregone conclusion
The spread between the 2-year and 10-year Treasuries is at historic lows at this stage of the rate hike cycle
This chart shows the federal funds rate, 2-year/10-year Treasury and 3-month/10-year Treasury yield spreads, and U.S. economic recessions from 1990 through March 1, 2022. Yield curve inversions typically have foreshadowed recessions, but spreads typically are far higher at the start of Fed rate-hike cycles than what we’re seeing in the current environment.
Mixed signals from a rising, flattening yield curve
A figure shows the yield curve at various points over the last nine months, namely June 30, 2021; December 31, 2021; March 14, 2022; and March 29, 2022. The spread between the 2-year and 10-year Treasuries narrowed from 120 basis points to six basis points over this time frame. In contrast, the spread between the 3-month and 10-year Treasuries widened from 140 basis points to 186 basis points. Overall, while the yield curve has flattened at the longer end of the curve, it has steepened at the short end.
What investors might do next

Contributors

Andrew Patterson
John Madziyire
Vanguard Information and Insights

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