The Decade-High 2-Year Treasury Yield Is Not the End of the Bond Bull Market

The 30-year bond bull market has been predicted dead many times. Though 2-year Treasury yields hit a decade high, this time probably isn’t any different.

The 2-Year Treasury yield jumped above 1.60 percent today. That’s the highest level since the fall of 2008. The rising yield is taken as a bullish sign of near-term economic prospects – investors are dumping low-yielding debt to jump into the stock market which continues to hit all-time highs.

The inimitable John Authers comes at this with a bit of tongue-in-cheek. But the rise in the yield might not the harbinger of an boom that many would expect. Looking at the 2-year in comparison to the 10-year yield, short-term rates are rising much faster than long-term yields.

A falling spread between the 2-year and 10-year yields indicates a flattening yield curve. That’s typically taken as a sign of trouble. Granted, the 10-year yield has continued to rise, which still indicates a risk-on environment. If the yield curve were flattening because investors were buying long-dated bonds, sending yields lower, that would be a pretty clear warning signal. But the fact that investors are holding dearer 10-year Treasuries shows a certain amount of worry in the system.

Still, the falling spread between short- and long-term debt is worth watching.

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