US Treasury Yield Curve Continues to Flatten

The US Treasury yield curve has undergone a significant shift over the past year, reflecting changing expectations for interest rates, inflation, and economic growth. Although yields remain considerably higher than in November 2025, recent declines across most maturities indicate a change in market sentiment.

Both the annual and monthly movements have resulted in a flatter yield curve, but the underlying dynamics differ.

Bear Flattening Over the Past Year

Over the last 12 months, the Treasury market experienced bear flattening, with yields rising across all maturities. Shorter-term yields increased more sharply than longer-term rates, reflecting tighter financial conditions and expectations of higher interest rates.

The main changes were:

2-year Treasury yield: Increased by 96 basis points.
10-year Treasury yield: Rose by 75 basis points.
30-year Treasury yield: Advanced by 56 basis points.

The stronger increase in shorter-term yields narrowed the gap between short- and long-term borrowing costs.

Bull Flattening Takes Hold

Over the past month, Treasury yields have moved in the opposite direction, resulting in bull flattening. Unlike the annual trend, yields declined across most maturities, with medium- and long-term bonds recording larger decreases.

2-year Treasury yield: Declined by 24 basis points.
10-year Treasury yield: Fell by 37 basis points.
30-year Treasury yield: Dropped by 33 basis points.

These movements suggest that investors are increasingly reassessing longer-term economic conditions, even as short-term interest rate expectations remain elevated.

Yield Spread Narrows Further

The shift is particularly evident in the spread between 2-year and 10-year Treasury yields.

The spread stood at approximately 52.5 basis points in November 2025, narrowed to 45.1 basis points last month, and reached 31.7 basis points on November 10, 2026.

This continued flattening may reflect expectations of moderating inflation, slower economic growth, or stronger demand for longer-term government bonds.

Inflation and Fed Policy Remain Key Drivers

Upcoming US inflation figures, Federal Reserve decisions, and economic growth indicators will be crucial in determining the next direction for Treasury yields.

While declining long-term yields may provide some relief to financial markets, borrowing costs remain substantially higher than a year earlier.

The transition from bear flattening to bull flattening signals a shift in bond market momentum rather than a complete reversal of the broader interest rate environment.

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