The Flat Yield Curve Supports Aggressive Tightening
The weekly charts below show the:
* US02-Yr Treasury (top).
* US10-Yr Treasury (middle).
* 10/02 Yield curve (bottom).
The spread between the 10/02 has declined to 0.371%. I.e., the yield curve has flattened remarkably since the middle of last year (red rectangle). The reason is the sharp increase in the US02-Yr (blue rectangle) vs. the shallower incline of the US10-Yr note (green rectangle). The steepness of the shorter maturity indicates that the market expects aggressive rate hikes from the Fed (central banks typically influence the front end of the curve). Moreover, while tensions at the Ukraine-Russian border intensify, the oil price has jumped by 23% since the beginning of the year, adding to inflationary pressures. Fed Funds futures currently indicate a 36% chance of a 50bps hike on 16 March. Aggressive tightening is a core risk to stock market valuations for 2022 and may lend support to the greenback.
Featured Image by krzysztof-m from Pixabay
Russell Shor
Senior Market Strategist
Russell Shor is a Senior Market Strategist at FXCM, having been promoted to the role in 2025 in recognition of his depth of insight and consistent delivery of high-impact market analysis. He originally joined FXCM in October 2017 as a Senior Market Specialist.
Russell holds an Honours Degree in Economics from the University of South Africa, is a certified FMVA®, and a full member of the Society of Technical Analysts (UK). With over 20 years of experience in financial markets, his work is renowned for its clarity, precision, and strategic value across asset classes.
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