WisdomTree’s Head of Fixed Income Strategy, Kevin Flanagan argued on Wednesday that future rate cuts by the Federal Reserve could dictate the specific timing of when the yield curve between the shorter end U.S. 2-Year Treasury yield (US2Y) and the longer end U.S. 10-Year Treasury yield (US10Y) will un-invert.
“The potential for Fed rate cuts could impact the timing of the yield curve moving out of negative territory, with the UST 2-Year/10-Year spread potentially being the first to do so,” Flanagan stated.
Flanagan went on to add: “Short-term yields are going to be anchored by the Fed Funds Rate, while longer-dated maturities are affected by not only monetary policy but also economic and inflation expectations and, at times, fiscal policy as well.”
The yield curve between the 2-year and 10-year initially inverted back in July of 2022 and has yet to un-invert. At the moment the inversion between the 2-Year and 10-Year sits at -32 basis points, which is noticeably lower than the -50 basis points that was recorded between the two instruments just two weeks ago.
For investors that are closely watching the moves in the yield curve, they may look to further analyze Treasury focused exchange-traded funds and other fixed income ETFs as a proxy investment. See some popular listed funds below:
Treasury ETFs: (NASDAQ:TLT), (NYSEARCA:TLH), (IEF), (IEI), (SHY), (SGOV), (SCHO), and (BIL).
Bond ETFs: (AGG), (BND), (VCIT), (MUB), (MBB), (JNK), (LQD), (HYG), and (TIP).
Moreover, see how other yields trade across the entire yield curve here.