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Is the Flattening Yield Curve Sending a Message?

Posted on 03/22/2018

The yield on 2-year U.S. Treasury notes recently surpassed 2% for the first time in almost a decade. This raised concerns among some market observers about the speed and trajectory of future federal funds interest-
rate changes. Why? Two-year Treasury yields are the most sensitive maturity to Federal Reserve (Fed) interest-rate changes—and there is a fear that additional hikes by the Fed will choke off economic growth and cast a bearish signal for the economy that portends a potential slowdown.

We have a more sanguine view, as interest-rate changes are hard to predict and there are multiple moving parts that could impact the trajectory. Instead, we believe investors can learn more from examining the overall Treasury yield curve—which represents the entire Treasury bond market—rather than focusing on individually rising yields.
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