Wednesday’s U.S. June inflation data produced welcome relief for investors, taking pressure off a deeply inverted Treasury yield curve for now.The 2-year rate BX:TMUBMUSD02Y was trading around 85 basis points above the 10-year yield BX:TMUBMUSD10Y during the New York session — producing the least negative spread between the two yields in about a month. The 2s10s spread had been at more than minus 100 basis points as recently as last week, and was minus 92.
Wednesday’s CPI data contained the lowest annual headline inflation rate since 2021, at 3% — giving investors and traders a taste of the long-awaited decline in inflation they had been hoping for. A less negative 2s/10s spread reflects “a less sky-is-falling type of messaging,” said Bryce Doty, senior vice president and senior portfolio manager at Sit Investment Associates in Minneapolis. “It bolsters confidence when the curve isn’t so inverted because people view it as such an albatross, a sign of disaster. As that signaling dissipates, all of a sudden it’s like a dark cloud disappearing.”
Read: Bond-market recession gauge plunges further into triple digits below zero after reaching four-decade milestone
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