2025: The Year Of 'Un-Inverted' Yield Curves

2025-01-16 03:40:00 ET

Summary

• U.S. Treasury yield curves have normalized after prolonged inversion, with the 2s/10s and 3-Month/10-Year constructs now turning positive.
• Federal Reserve rate cuts and a macro narrative shifting toward moderate growth and bumpy inflation have driven this 'un-inversion,' yet the yield curve slopes remain relatively flat compared to historical norms.
• Fixed income strategies should prioritize managing volatility and duration, as extending duration remains challenging despite a return to positive yield curves.

By Kevin Flanagan

In last week's blog post, I continued the discussion of our Rate Normalization theme , specifically focusing on where the U.S. Treasury ((UST)) 10-Year yield could possibly be headed. For this week, I wanted to expand on the topic and address our base case - that Treasury yield curves have also begun to normalize and will remain positively sloped in 2025....

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