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At the start of Wednesday’s trading session, the U.S. 2-year Treasury yield (US2Y) topped levels not seen since 2007 and the yield curve inverted to more than 100 basis points, touching a multi-decade high.
The US 2Y popped above 5% to 5.05% as it gained 4 basis points early on. This yield had not traded north of 5% since July of 2007. At the same time, the instrument had widened its gap against the longer U.S. 10 Year Treasury yield (US10Y) which remains flat at 3.97%.
The inverted spread between the two instruments has now widened to 109 basis points, reaching yet another more-than-40-year high. The yield curve has not seen a gap this expansive since September of 1981.
See below a chart of the current inversion:
With Federal Reserve Chair Jerome Powell set to speak again on Wednesday, Treasury yields will be carefully monitored. In turn so will exchange traded funds that have their price action tied to large-scale bonds and yields.
If yields rise, bond funds across the market will fall, as yields and bond prices move in opposite directions. The inverse situation also applies, with a fall in yields pushing bond funds higher.
See a grouping of funds that will remain in focus on Wednesday: (NYSEARCA:AGG), (NASDAQ:BND), (NASDAQ:TLT), (NASDAQ:IEI), (IEF), (SHY), (GOVT), (VGSH), (VGIT), (SCHO), (SCHR), (SPTL), (TLH), and (VGLT).
In broader financial news, stock index futures were slightly lower on Wednesday after the selloff prompted by Fed chief Jay Powell’s D.C. appearance.