US Yield Curve Flattens Amid Rate Hike Expectations

The US bond market has been experiencing a rout due to sticky inflation and firming expectations of a Federal Reserve rate hike, causing yields to surge to multi-year highs.

However, the more telling story may be the shape of the yield curve, which is flattening as investors bet that the Fed will start a tightening cycle and raise interest rates four times within a year.

The gap between two- and 30-year yields shrank to 71 basis points, the narrowest since late June, while the benchmark '2s/10s curve' also narrowed to 31 basis points, the tightest spread since July 29.

This implies that the Fed may have to reverse course and loosen policy due to doubts about the economy's ability to cope with rising interest rates, particularly consumers' ability to handle it.