[The U.S. Treasury yield curve almost issued a warning that the market narrative may begin to shift toward the risk of economic stagnation] On September 28, the U.S. bond market almost sent out a signal: a series of interest rate hikes by the Federal Reserve will begin to shift the market narrative toward concerns about the risk of U.S. economic stagnation. Last week, the extra yield investors required to hold the 10-year Treasury note over the 2-year Treasury note narrowed to just 17 basis points, the smallest spread since early 2025. This flattening of the yield curve increases the likelihood that 10-year Treasury yields will soon fall below short-term Treasury yields, a closely watched phenomenon known as an inverted yield curve. Historically, an inverted yield curve has been a powerful signal: The past eight recessions since the 1960s have all shown signs of an inverted yield curve, although the predictive power inherent in such movements proved to be biased earlier this decade. This is essentially a way for bond investors to express their expectations that the Fed will push interest rates high enough to suppress economic growth in an effort to curb inflation. “Seeing the 2-year and 10-year yield curves invert or flatten sharply calls into question the narrative that the economy is very strong, which is part of what the bond market is pricing in,” said Zach Griffiths, head of investment grades and macro strategy at CreditSights.