The yield gap between the 10-year and 2-year U.S. Treasuries is expected to narrow further in the coming months, according to Capital Economics. They note that escalating tensions in the Strait of Hormuz could cause the yield curve to become fully inverted. “One reason for this difference is that expectations for short-term real rates have risen more than expectations for long-term real rates, which may be a response to strong economic data.” Capital Economics also expects the 2-year and 10-yea

The yield spread between 10-year and 2-year US Treasury bonds will further narrow in the coming months, according to Capital Economics. Tensions in the Strait of Hormuz may lead to a complete inversion of the yield curve. "One reason for this disparity is that the expected increase in short-term real interest rates exceeds the expected increase in long-term real interest rates, which may be a response to strong economic data." Capital Economics also expects the yield curve between 2-year and 10-year Treasury bonds to flatten further as investors reflect additional rate hike expectations. "We forecast that the Federal Reserve will raise rates by 75 basis points over the next year, while the current market expectation is for 40 basis points," they stated.