Treasury Curve's Relentless Flattening Takes a Breather

The seemingly relentless flattening of the Treasury yield curve is taking a breather, with the gap between 2-year and 10-year yields rebounding after touching just 41 basis points on Wednesday, the smallest differential in more than a decade. The widening of the gap in Asian and early European trading Thursday “was accompanied by heavy volumes and the 10-year sector was the most active – an infrequent event typically associated with pivotal moments in the Treasury market,” BMO Capital Markets strategists Ian Lyngen and Aaron Kohli said in a note. While there may be room for further tactical resteepening, BMO said its bias is for the curve to ultimately flatten further.

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