Aggressive T-yield curve flattening could be sign of recessionary concerns - BNY Mellon

Marvin Loh, Senior Global Market Strategist at BNY Mellon takes note of the sharp flattening of the Treasury yield curve over the last one year and whether it is signaling recession.

Key quotes

• We have seen the biggest relative flattening of the curve since emerging from the crisis, with 2s10s flattening 125 bps last year to settle into the low 50 bps range.
• This aggressive flattening, which has continued into the start of the year, has again raised the specter that the market is signaling heightened recessionary concerns

The 2-year yield is most sensitive to interest expectations, while,  the 10Y has the biggest impact on the economy via its benchmark status for multiple loan categories. So, "we tend to favor the 2s10s as the greatest reflection of economic expectations", says Loh.

As of writing, the spread stands at 68 basis points. Leo believes the curve could continue to flatten further but does not see it inverting.