Treasury yield curve continues to collapse

The Treasury yield curve continues to hit new decade lows despite speculation that tax reform will push US economy towards inflation.

The spread or the difference between the 10-year treasury yield and the 2-year Treasury yield fell to 52.40 basis points yesterday; the lowest since Oct. 31, 2007.

The flattening of the yield curve could be associated the 10-year yield's persistent failure to hold above 2.4 percent. Meanwhile, the 2-year yield remains relatively resilient on fears that Fed may continue to hike rates next year despite waning confidence on inflation.

Still, the flattening of the curve since mid-November is somewhat surprising as the 5-year, 5-year forward inflation expectation rate has improved 1.89 to 2.03.

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