Rate Spread Rising

Interest rates, especially the long end of the curve, have been edging up from the lows of 2020. The 10-year U.S. Treasury yield (orange line) is now at 1.14%. With the Fed committed to near zero short term rates, the 2-year Treasury yield (blue) has stayed below 0.20%.

Therefore, the spread between the 10- and 2-year Treasuries (black) has moved up along with the long end. I created the chart to include the prior two recessions in order to highlight the subsequent increase in spread. Note the spread was negative before the earlier recessions. Eventually, the spread reached a range of 2.00% to 3.00%.

A move up to this range could have a negative impact on markets. Of course, upward moves in rates may also reflect economic growth, offsetting the negative influence of higher rates. More to ponder.