Bond Report: Treasury yield curve flattens on U.S. growth fears


The U.S. yield curve flattened Tuesday as investors mulled how far the Federal Reserve will hike interest rates as the U.S. economy slows.

What’s happening
  • The yield on the 2-year Treasury TMUBMUSD02Y, 2.873% rose 6.9 basis points to 2.906%. Yields move in the opposite direction to prices.
  • The yield on the 10-year Treasury TMUBMUSD10Y, 2.884% advanced 1.4 basis points to 2.908%.
  • The yield on the 30-year Treasury TMUBMUSD30Y, 3.107% rose 1.1 basis points to 3.129%.
What’s driving markets

The U.S. benchmark 10-year yield is down more than 50 basis points from the multi-year peak touched in mid-June, after worries about inflation turned into concerns about economic growth.

The market is fearful that the Federal Reserve’s battle to suppress price rises — by quickly raising interest rates and reducing its balance sheet — may tip the world’s biggest economy into recession.

The result is a flattening yield curve, with 2-year yields of 2.906% little different to those provided by the benchmark 10-year.

A bunch of reports and data over the next several sessions should provide further clues to the Fed’s policy trajectory.

Arguably the most important data will be the nonfarm payrolls survey published on Friday. Signs that the labor market is starting to feel the stress from higher borrowing costs could color the Fed’s thinking. See the economic calendar.

Meanwhile, in Europe, German 10-year Bund yields TMBMKDE-10Y, 1.270% fell 3 basis points to 1.302% amid concerns are that the eurozone’s largest economy is facing severe problems from the recent surge in energy prices. Germany is considering a bailout of Uniper UN01, -4.33%, its largest importer of Russian gas, while also preparing the possibility of rationing during the winter.

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