The Treasury yield curve is currently in a normal state, with the 10Y-2Y spread sitting at 0.58%. This positive slope marks a significant departure from the prolonged inversion period that ended in late 2024. While short-term rates remain elevated, the upward trajectory toward the long end reflects a traditional term premium returning to the market.
| Tenor | Yield | 1W Chg | 1M Chg |
|---|---|---|---|
| 1M | 3.75% | +0.01% | +0.03% |
| 3M | 3.71% | -0.01% | +0.04% |
| 6M | 3.68% | +0.00% | +0.10% |
| 1Y | 3.56% | +0.02% | +0.12% |
| 2Y | 3.56% | +0.09% | +0.09% |
| 3Y | 3.58% | +0.09% | +0.03% |
| 5Y | 3.71% | +0.09% | -0.03% |
| 7Y | 3.90% | +0.08% | -0.07% |
| 10Y | 4.12% | +0.07% | -0.09% |
| 20Y | 4.70% | +0.06% | -0.09% |
| 30Y | 4.72% | +0.02% | -0.13% |
The curve exhibits a slight belly dip in the front end, with the 1M yield at 3.75% falling to 3.56% at the 2Y mark. Beyond the two-year note, yields rise steadily, with the 10Y at 4.12% and the 30Y reaching 4.72%. This steepening at the long end suggests markets are pricing in long-term growth and inflation expectations. Notably, short-term yields have risen over the last month while long-term yields have declined, leading to a flatter overall profile than 30 days ago.
The 10Y-2Y spread of 0.58% is currently in its 43rd historical percentile, indicating a relatively healthy positive slope. The 10Y-3M spread is also positive at 0.44%, though it sits in a lower 22nd percentile. These positive spreads typically signal a reduced immediate risk of recession compared to inverted environments. However, the one-month decline of 14 basis points in the 10Y-2Y spread warrants monitoring for potential flattening if economic data softens.
The current normal curve follows a historic 783-day inversion of the 10Y-2Y spread that lasted from July 2022 to August 2024. That period saw the spread reach a minimum of -1.08%, the most severe in recent record. Since then, the curve has briefly dipped back into inversion twice in late 2024 for single-day episodes. The current 0.58% spread represents a sustained recovery and a return to a more traditional economic signaling environment.
| Horizon | Spread Δ | S&P 500 |
|---|---|---|
| 3 Months | +0.03% | +4.5% |
| 6 Months | +0.12% | +12.2% |
| 12 Months | +0.22% | +20.3% |
Looking at eight similar historical periods where the 10Y-2Y spread was near 0.58%, the outlook for equities is generally favorable. Parallels from 2025 and late 2021 show that the median S&P 500 return six months forward in these instances is +12.2%. Returns have been positive 76% of the time, though the range is wide, spanning from -21.1% to +25.9%. Furthermore, the 10Y-2Y spread typically continues to steepen in these environments, with a median 6-month forward change of +0.12%. This suggests that while volatility exists, the structural trend for the curve remains toward normalization.
| 5Y | 1.15% | -0.11% |
| 7Y | 1.48% | -0.11% |
| 10Y | 1.78% | -0.11% |
| 20Y | 2.27% | -0.10% |
| 30Y | 2.51% | -0.08% |
| 5Y | 2.53% | +0.03% |
| 10Y | 2.33% | -0.01% |
Real yields remain restrictive, with the 10Y TIPS at 1.78% and the 30Y at 2.51%. Breakeven inflation rates are anchored, with the 10Y at 2.33%, suggesting the market expects inflation to remain near the Fed's target. The gap between the Fed Funds Rate of 3.64% and the 10Y yield of 4.12% reflects a market-driven term premium rather than immediate policy easing.
| Sector | 1W | 1M | vs SPX | YTD |
|---|---|---|---|---|
| Utilities (XLU) | -1.1% | +7.4% | +9.6% | +9.1% |
| Energy (XLE) | -1.6% | +4.4% | +6.6% | +24.4% |
| Real Estate (XLRE) | -1.8% | +2.2% | +4.4% | +6.4% |
| Communication (XLC) | -0.5% | +1.4% | +3.6% | -0.3% |
| Technology (XLK) | +1.7% | -0.9% | +1.2% | -2.9% |
| Industrials (XLI) | -3.1% | -1.8% | +0.4% | +9.6% |
| S&P 500 (SPY) | -0.5% | -1.9% | +0.2% | -0.7% |
| Cons Staples (XLP) | -2.3% | -2.5% | -0.3% | +10.4% |
| Health Care (XLV) | -2.3% | -2.9% | -0.7% | -1.1% |
| Cons Disc (XLY) | +0.1% | -3.0% | -0.8% | -4.2% |
| Materials (XLB) | -4.0% | -3.2% | -1.0% | +10.0% |
| Financials (XLF) | -2.2% | -7.7% | -5.6% | -8.6% |
| Stock | Price | 1M | 6M | 1Y | YTD | VS S&P 500 |
|---|---|---|---|---|---|---|
| AMT American Tower | $186.12 | +8.7% | -3.0% | -10.1% | +6.0% | +10.8% |
| SO Southern Company | $96.27 | +6.9% | +6.0% | +7.1% | +10.4% | +9.0% |
| DUK Duke Energy | $129.69 | +6.4% | +7.9% | +13.1% | +10.6% | +8.6% |
| ARKK ARK Innovation | $72.89 | +3.5% | -4.3% | +39.0% | -5.2% | +5.7% |
| O Realty Income | $64.88 | +2.6% | +10.8% | +15.2% | +15.1% | +4.8% |
| NEE NextEra Energy | $91.54 | +2.3% | +31.2% | +27.7% | +14.0% | +4.5% |
| TLT 20+ Year Treasury | $88.28 | +0.8% | -0.2% | +1.6% | +1.3% | +3.0% |
| PLD Prologis | $136.16 | -0.6% | +21.0% | +16.7% | +6.7% | +1.6% |
| DHI D.R. Horton | $145.28 | -7.0% | -21.1% | +9.5% | +0.9% | -4.9% |
| PRU Prudential | $95.47 | -7.1% | -9.8% | -12.0% | -15.4% | -5.0% |
| MET MetLife | $70.60 | -7.6% | -10.7% | -12.2% | -10.6% | -5.4% |
| JPM JPMorgan Chase | $288.73 | -10.4% | -0.9% | +21.1% | -10.0% | -8.3% |
| C Citigroup | $108.97 | -11.2% | +14.3% | +57.9% | -6.6% | -9.0% |
| KRE Regional Banks ETF | $64.72 | -12.1% | +0.0% | +15.1% | -0.1% | -9.9% |
| LEN Lennar | $98.72 | -13.4% | -30.4% | -20.1% | -4.0% | -11.2% |
| BAC Bank of America | $48.56 | -14.1% | -1.8% | +18.6% | -11.7% | -11.9% |
| WFC Wells Fargo | $78.30 | -16.7% | -0.5% | +12.0% | -16.0% | -14.5% |
The current curve environment and recent sector performance highlight a defensive shift in the equity market. Utilities have outperformed the S&P 500 by 9.6% over the last month, while Financials have lagged significantly, dropping 7.7%. This rotation, combined with a VIX spike to 24.9, suggests investors are hedging against volatility despite the positive historical returns associated with this curve shape. Historically, this spread level supports a median 12.2% forward return, but the current laggard status of Financials suggests concerns over net interest margins.
Investors should consider a balanced approach, acknowledging the historically high 76% probability of positive 6-month equity returns. Given the recent outperformance of Utilities and Energy, a defensive tilt may be appropriate while the VIX remains elevated at its 30th percentile. Fixed income investors may find the 30Y yield of 4.72% attractive for locking in duration as the curve continues its normalization process. Key signals to watch include the 10Y-2Y spread's ability to hold above 0.50% and any further spikes in the VIX above 25.