The yield curve is still flatter than at anytime since the last recession

If you look at the difference in yield between 2 and 10-year treasuries, the numbers over this past year are the lowest since 2008, when the US economy was in a recession.

Why this matters: Flat yield curves are dangerous because they signal an economy that is not robust enough to keep the central bank in tightening mode for the foreseeable future. What the flatness says is that the central bank will have to move from a neutral to hawkish stance to an accommodative to neutral stance in order to prevent the economy from worsening.

The Trump rally in yields which began in November has petered out, and the yield curve has resumed flattening by a full 19 basis points since December. Interest rate hikes by the Fed threaten to flatten the curve even more.

We are still a long way from an inverted yield curve – a reliable indicator of imminent recession. But the yield curve is telling the Fed that it only has room for five hikes in the next two years to prevent itself from creating the next recession.

Source: St Louis Fed