Summary:
Australian Yield Curve (3-Year vs 10-Year)
- Current Trend:
Both 3-year (red line) and 10-year (blue line) yields remain elevated compared to pre-2022 levels, reflecting the sustained tightening cycle and higher term premiums. - Spread Analysis:
The spread (grey bars) between 10-year and 3-year yields is hovering around 1.2%–1.4%, indicating a steep curve relative to the inversion seen in 2020–2021. This steepness suggests markets expect policy rates to stabilize, with longer-term inflation risk priced in. - Historical Context:
After bottoming near zero in 2021, yields surged sharply through 2022 as the RBA shifted to aggressive hikes. Since mid-2024, yields have plateaued, signaling a transition from tightening to a more neutral stance.
Figure 1: Australia 3 and 10-year Bond Yield Spread
US Yield Curve (2-Year vs 10-Year)
- Current Trend:
The 2-year yield (green line) has eased slightly from its 2023 peak, while the 10-year yield (blue line) remains relatively firm. - Spread Analysis:
The spread remains narrow and near zero, following a prolonged inversion through 2022–2024. This flattening suggests recession fears are fading, but the curve is not yet fully normalized, pointing to lingering uncertainty about Fed rate cuts. - Historical Context:
The inversion phase was one of the deepest in decades, driven by aggressive Fed hikes. Current stabilization reflects expectations of a soft landing and gradual policy easing.
Figure 2: US 2 and 10-year Bond Spread
To learn more about yield curves and their predictive power, visit this article or this one.