On The QT: US Treasury 10Y-2Y Slope Flattens To 21 BPS With Probability of Recession Equaling 13.60% Over Next 12 Months (2Y Yield Rising Faster Than 10Y Yield)

Well, we are back to 2007 before the beginning of The Great Recession and Global Financial Crisis. In terms of the US Treasury yield curve, that is.

As of this morning, the 10Y-2Y Treasury slope flattened again to 21 basis points. A far cry from the nearly 300 basis point peaks in 2010-2011.

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According to the NY Federal Reserve, the probability of a recession over the next 12 months is 13.6%.

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If the yield curve has flattened to 21 basis points and the NY Fed estimates that the probability of recession is only 13.6% over the next 12 months, what is causing the yield curve to flatten, what is causing the flattening?

How about The Federal Reserve raising their Fed Funds Target Rate? It is climbing faster than the 10-year Treasury yield.

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The 10-year Treasury yield rose rapidly after the beginning of Treasury’s QT (quantitative tightening), but the impact of QT has run out of steam.

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Bottom line? It is The Federal Reserves raising its target rate that is the primary culprit in flattening of the Treasury curve and the fading of QT for the 10-year yield.  On the QT and very hush hush.

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