US 10's mins 2's for Dec 2nd, 2021

Dec 2, 2021

The yield differential between two-year and ten-year US Treasury notes, known as the 2s10s spread, has reached its highest level since November 2015. The 2s10s spread, which describes the slope of the yield curve, receives a lot of attention from market analysts and has arguably been a strong indication of economic mood and expectations. Historically, a steep yield curve indicates that investors are pricing in robust economic growth. When the 10-year yield is higher, investors do not purchase Treasuries, signaling that inflation expectations are high. It would also imply that investors anticipate the Federal Reserve Bank of the United States setting a higher benchmark interest rate than the existing one. In contrast, a flat yield curve indicates that long-term inflation expectations are modest. As a result, slowing economic activity and outperformance of fixed income assets are predictable outcomes. A yield curve inverted by 2 x 10 s implies the risk of a recession. In fact, the inversion of the yield curve, which happens 6–24 months before the economy falls to the point of technical recession, has forecasted every recession since 1955. The 10-year rate has risen sharply, breaking through a barrier level that had been in place since March 2020, fueling the steepening in 2:10. The rising 10-year rate, which is frequently used as a proxy for the risk-free rate in net present value calculations, has weighed on risk assets while driving the dollar higher as investors flock to risk-free 1.6 percent US Treasury notes. The US dollar index, DXY, has already broken through many resistance levels and is approaching its 200-day moving average of $92.9. DXY may be destined for a fall since the price has surged two standard deviations over its 21-day mean. The SPX has given up all of its gains from February and is now looking for support. According to the daily chart, the current spread on the 2s10s yield curve is close to 1.37 percent (2-year yield is 0.16 percent and the 10-year is 1.53 percent). Since October 2020, the pair has been heading upward. Prices have found support largely between the 8-day and 21-day EMAs, with a few dips to the 34-day support level, suggesting a strong rising trend. Furthermore, prices have been testing and smashing the upper Bollinger Band resistance level on a regular basis. Technical indications suggest a continuation of the 2s10s yield curve's upward trend, with the chance of consolidation before a rise higher.

We predict the USD will climb if the positive trend continues, placing pressure on risk assets like gold.