Chart of the week

As inflation cools, macro alarms sound anew

The 10Y–2Y yield curve inverted to its deepest level in 40 years. This week’s chart looks at the yield curve over time as macro risks remain prominent.

November 18, 2022 | 2 minute read

10Y-2Y yield curve inversion deepens

Source: Bloomberg Finance, L.P., as of November 17, 2022.

  • Last week, stocks saw their best week since June, as markets were jubilant at the prospect of a potentially less hawkish Fed following October’s downside surprise in the CPI report. They were more mixed this week as investors awoke again to the reality the path forward could be a rocky one for investors and the U.S. economy.
  • Multiple prominent Fed presidents sought to dampen investor enthusiasm this week. Each acknowledged it may be appropriate for the Fed to slow the pace of future rate hikes, but also sounded more dubious about whether the FOMC has established a predetermined terminal (peak) Fed funds rate, and reiterated the central bank’s resolve to dampen inflation by keeping rates elevated for a sustained period if necessary.
  • Strong retail sales data released this week highlighted the difficult path that lies ahead for policymakers as the employment picture remains firm.
  • All major segments of the yield curve are currently inverted, yet after the retail sales release, the spread between 2-year and 10-year U.S. Treasury yields reached its deepest level since 1981.1
  • The depth of the current yield curve inversion is a reminder of the challenging macro and market conditions that could lie ahead for traditional stock and bond markets even if inflation continues to cool.

  • Bloomberg Finance, L.P., as of November 17, 2022.

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