The spread between 2-year and 10-year US Treasury yields narrowed to 17 basis points, approaching inversion, a phenomenon that has preceded all 8 past recessions.

BlockBeats news, September 28 - According to BIT (bit.com) market data, the spread between 2-year and 10-year US Treasury yields narrowed to 17 basis points last week, the narrowest since early 2025. Currently, the 2-year and 10-year yields are approximately 4.9% and 5.2%, respectively, with the 10-year still near its highest level since 2007. However, as the market anticipates further rate hikes by the Federal Reserve, short-end yields are rising faster, and the spread is approaching inversion.

The market is currently pricing in at least three 25 basis point rate hikes by the Fed over the next year. Previously, the rise in long-end yields mainly reflected economic resilience, inflation pressures, and fiscal risks. But after the Fed implemented its first rate hike in three years in September, the market began to focus more on whether the policy rate is high enough to suppress future growth. Historical statistics show that since the 1960s, yield curve inversions have occurred before 8 of the past US recessions, with the 2-year and 10-year average inverting about 15 months before the start of a recession, ranging from 6 months to two years. However, the inversion in 2022 did not lead to a recession.

The impact of the flattening US Treasury yield curve has already transmitted to bank stocks, with the KBW Bank Index entering a technical correction last week, down 10% from its recent high. Zach Griffiths, head of strategy at CreditSights, said that if the curve further inverts or significantly flattens, it will weaken the market's judgment that "the US economy is very strong." Gennadiy Goldberg of TD Securities believes that the market has already priced in considerable rate hike expectations, and the space for short-end yields to continue significantly outperforming long-end yields is limited, and the curve may steepen again in the future. The 17 basis point spread more directly reflects the market re-pricing the risk of overly tight policy, rather than a recession being a foregone conclusion.