Yield curve between two- and 10-year treasury notes hits steepest level since mid-July; last at positive 58.5 bps

Yield curve between two- and 10-year treasury notes hits steepest level since mid-July; last at positive 58.5 bps

Title: Yield Curve Between Two- and 10-Year Treasury Notes Hits Steepest Level Since Mid-July

The U.S. yield curve between two-year and 10-year Treasury notes reached its steepest level since mid-July, according to data from the Federal Reserve Bank of St. Louis [3]. The spread between the 10-year and 2-year Treasury yields stood at a positive 58.5 basis points (bps) as of July 2, 2025.

The steepening of the yield curve is attributed to several factors. Federal Reserve Chair Jerome Powell's remarks at the annual Jackson Hole symposium in Wyoming, where he hinted at a possible interest rate cut at the central bank's September meeting, have contributed significantly to the decline in yields [1, 2]. Powell acknowledged the growing risks to the job market and higher inflation, suggesting that the "shifting balance of risks may warrant adjusting our policy stance" [1].

The U.S. two-year yield, which is tied to the Fed's monetary policy, fell 10.2 bps to 3.69% on Friday, August 22, 2025, marking its largest daily decline since August 1, 2025 [1]. The benchmark 10-year yield also fell to a one-week low and was down 7.2 bps to 4.259%, its biggest one-day decline in three weeks [1].

Following Powell's remarks, the yield curve steepened, with the gap between two-year and 10-year yields hitting 58.1 bps, the steepest level since mid-July [1]. This steepening indicates that traders are pricing in an imminent rate cut from the Fed. The U.S. rate futures market priced in an 89% chance that the Fed will cut rates in September, up from 75% on Thursday [1].

Additionally, U.S. President Donald Trump's threat to fire Federal Reserve Governor Lisa Cook if she doesn't resign has added political uncertainty to the mix [1]. Cook, the first Black woman to serve on the Fed's Board of Governors, has stated that she has "no intention of being bullied to step down" [1].

The steepening of the yield curve signals expectations for stronger inflation or fiscal expansion, which could have significant implications for the economy and financial markets. Investors are closely watching for clarity from the Fed's next move, as monetary policy, political concerns, and fiscal supply all collide [4].

References
[1] https://fixedincome.fidelity.com/ftgw/fi/FINewsArticle?id=202508221549RTRSNEWSCOMBINED_L1N3UE0OQ_1
[2] https://www.tradingview.com/news/reuters.com,2025:newsml_L1N3UE0IH:0-us-yields-dive-after-fed-s-powell-s-dovish-turn-in-jackson-hole/
[3] https://fred.stlouisfed.org/series/T10Y2Y
[4] https://seekingalpha.com/news/4486875-yield-curve-steepens-as-fed-policy-politics-and-treasury-supply-collide