There has been a lot of focus recently on the yield curve. For the purposes of this blog, we define it as the spread between 10-year US treasury yields and 2-year US treasuries.
Today it is tracking at ~30 bps, the tightest it’s been since the Financial Crisis.
One would typically expect a positive yield spread since a 10-year instrument has higher risk than a 2-year instrument. For example, investors should demand a premium yield for 10-years vs 2-years. Historically, this spread has averaged 100bps, with a range of roughly -100bps to +300 bps (see chart below).