INTERCONNECTED INVERSION – 2/21/22

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. (Source: Dr. Elliot Eisenberg, the Bowtie Economist).

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