Trouble With the Curve

Two-line chart showing 2/10 Treasury spread and effective federal funds rate since 1999. Chart subtitle: The difference between the 2- and 10-year Treasury yields has narrowed in recent months, and upcoming rate increases by the Federal Reserve could lead to further spread tightening. Chart visual description: Left y-axis shows Basis Points, ranging from -100 to +300. Right Y-axis shows percent range from -3% to +8%. X-axis dates range from 2/28/99 to 2/28/22, with annual increments. Recessions are shaded in light blue, representing the Dot-Com Bubble in 2001, the Global Financial Crisis in 2008, and 2020’s short-lived Coronavirus recession. Slate line represents 2/10 Spread and corresponds to the left Y-axis (basis points). Light purple line represents Effective Federal Funds Rate and corresponds to the right Y-axis (percent). Orange arrows overlaid on the chart indicate 2/10 inversions (when line crosses X-axis) preceding recessions, in 2000, 2006, and 2019. Chart data description: The 2/10 Spread line has come down significantly since the start of 2022 and currently sits at approximately 23 basis points, its lowest since March 2020. In the early 2000s, the line peaked at 270 in 2004 before falling and inverting in January of 2006. It hovered near zero and inverted several times in the years leading up to the Global Financial Crisis, then climbed and fell and climbed to a peak of 291 in February of 2011. Since then, its highest level was 260 at year-end 2013, and it has fallen with a few periods of rising until April 2021’s level of 151 basis points. The Effective Fed Funds Rate has hovered near zero for the last two years. Prior to the Global Financial Crisis there were two major hills of climbs and falls, with the highest point charted in July 2000 at 7%; it fell following the 2001 recession and then rose again until the GFC, peaking at 5% in September 2007. Since then it has remained low; the most recent highs were from March to September of 2019, just over 2%. Source: Federal Reserve Bank of St. Louis as of March 7, 2022.

Posted on March 8, 2022March 8, 2022 Full size 1433 × 775

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