Treasury Curve Bull-Steepens as Front End Prices In Aggressive Easing
Two-year yields tumble to a 22-month low as soft labour data pulls forward expectations of the next Fed move.
U.S. two-year Treasury yields fell to 3.62 percent on Friday — the lowest since July 2024 — after the April employment report showed payroll growth of just 78,000 and an unemployment rate ticking up to 4.4 percent.
The bull-steepening in the curve is now pronounced. The 2s10s spread has widened to 64 basis points, the steepest since the inversion began in 2022, and a development that historically has presaged broader risk-off behaviour across credit and equities.
Fed funds futures now imply 75 basis points of additional easing by year-end, with non-trivial probability of a 50 basis point cut at the September meeting.
Investment-grade credit spreads have widened modestly but remain inside their five-year averages, suggesting that the bond market's recession signal remains, for the moment, more measured than its precedents.
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