Bear flattening ?

The US yield curve is flattening, but this should not be read as a signal that inflation expectations are coming down. This is more a bear flattening: the long end remains elevated, with the 10-year Treasury around 4.48%, while the short end has moved higher, with the 2-year now catching up around 4.17%.

In other words, bond markets are not really telling us that inflation is disappearing or that the rate cycle is clearly behind us. They are telling us that uncertainty remains high and that investors still demand compensation across the curve.

At ECP, we therefore continue to prefer shorter durations for as long as the future direction of interest rates remains uncertain.