Interconnected Inversion
02/16/2022 |
The 2-yr Treasury rate is 1.60%, the 10-yr, 2.00%, a difference of just 40bps. Due to high inflation, the Fed is planning to raise short-term rates by at least one percentage point and maybe 1.75 percentage points by 12/31/22. Raising rates this much with just a 40bp spread risks pushing the 2-yr rate above the 10-yr, inverting the yield curve. Troublingly, markets now expect an inversion within six months.