It’s happening.
The 10-year Treasury yield eclipsed its 2-year counterpart on Thursday morning, putting the Treasury yield curve in positive territory once more on an intraday basis.
Inversions of the yield curve have been a reliable signal ahead of past recessions. However, it’s once the curve flips positive again that the countdown to a slowdown begins in earnest. The jury is still out on if the yield curve has lost its predictive power in this cycle.
“Of course, a perfect soft landing would also bring a steeper curve, as the Fed will be able to cut and lower yields at the front-end,” wrote Jim Reid, Deutsche Bank’s global head of economics and thematic research, in a Thursday client note.
“So whichever way you lean, a positive sloping curve (if we continue to move in that direction) likely brings forward the moment of truth as to whether the yield curve has completely failed as a leading indicator in this cycle, or whether its powers were just felt later than in other cycles through history.”
The 2-year yield traded as low as 3.68% in early trade Thursday, but was last pegged at 3.73% as was the 10-year rate, according to FactSet.