2025 Themes- How to Play Yield Curve Normalization

As we look ahead to 2025, one of the most pivotal developments shaping the investment landscape is the "uninversion" or "Normalization" of the yield curve. Following the longest yield curve inversion in history, this shift signals a potential turning point for economic growth, Federal Reserve policy, and market dynamics. Understanding the drivers behind this normalization and its implications will be crucial for navigating opportunities across fixed-income and equity markets in the coming year.

For the first time in two years, the spread between the 10-year and 2-year Treasury yields has moved closer to flat, driven by a substantial decline in long-term yields and expectations for Federal Reserve rate cuts. This uninversion reflects changing market dynamics as investors anticipate a more accommodative monetary policy in the near future. With the 10-year yield falling 80 basis points since Q3 2023 and analysts forecasting further steepening into 2025, understanding the yield curve's behavior is critical for positioning portfolios effectively.