Yield Curve Continues to Fall

As investors price in lower inflation and increased expectations for a Fed rate hike, the yield curve (between the 30 year bond and the two year note) is continuously making new lows. Typically, the flattening or steepening of the yield curve is led by one end, but in this case, both appear to be contributing equally. This presents a problem for the Fed as raising rates (or more hawkish rhetoric) could hurl the yield curve closer to negative territory.

We can see the spread has been hugging the lower bound of the Kovach Reversals Indicator for some time, which is an extremely bearish sign. Also, the slope of the spread has become increasingly more negative.

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