Yield curve steepens as Fed policy, politics, and Treasury supply collide

[Yield Curve theme with Manhattan New York City]
Melpomenem

The U.S. Treasury yield curve is beginning to steepen, with both the 2-year/10-year and 10-year/30-year spreads widening, according to analysis from Apollo’s chief economist Torsten Slok.

Slok highlighted three key drivers behind the shift. First, the Federal Reserve’s may start cutting rates which will push down shorter-dated yields.

Second, some investors perceive the central bank’s easing cycle as politically influenced rather than purely data-driven, a view that raises inflation expectations and exerts upward pressure on longer-term rates.

Finally, a surge in Treasury issuance is adding supply to the market, further lifting yields on the long end of the curve.

The implications are significant. A steeper curve typically signals expectations for stronger inflation or fiscal expansion, and in this case, both dynamics may potentially be at play. The market’s response could hinge on comments from Fed Chair Jerome Powell at the annual Jackson Hole symposium later this week.

Slok noted that if Powell signals even a modest shift away from the Fed’s firm 2% inflation target, longer-term yields could rise further, accelerating the steepening trend. With monetary policy, political concerns, and fiscal supply all colliding, investors are watching closely for clarity from the Fed’s next move.

See the chart below provided by Apollo:
[Apollo Asset Management]
Inflation (Apollo Asset Management)

See how yields are trading across the entire curve here on Seeking Alpha’s bond page [https://seekingalpha.com/etfs-and-funds/etf-tables/bonds].

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