The US Treasury yield curve is nearing its steepest level in four years, with expectations of interest rate cuts coupled with concerns about the deficit pushing up the term premium.

According to ME News, on February 9th (UTC+8), the US Treasury yield curve is near its steepest level in over four years due to interest rate cuts and concerns about persistent inflation and fiscal deficits. The spread between the 10-year Treasury yield and the 2-year Treasury yield widened to as high as 73.7 basis points on Thursday, just slightly below the peak of 73.8 basis points reached in April, the highest level since January 2022. The spread widened on Thursday as signs of weakness in the US job market prompted traders to increase their bets on further monetary easing by the Federal Reserve this year. Overnight index swaps indicate that the Fed will cut its benchmark interest rate before June (just one month after the end of its term) and will implement two to three rate cuts totaling 25 basis points this year. Investors are speculating that President Trump's nominee for Fed chairman, Kevin Warsh, despite his hawkish reputation, will still favor lower interest rates. Martin Whetton, head of financial markets strategy at Westpac, said, "While the yield curve has shifted fairly horizontally, weak jobs data has introduced more downside risk to front-end yields. However, the curve has become steeper as comments from the Treasury Borrowing Advisory Committee earlier this week suggested that supply increases may occur earlier than expected in November." (Source: ME)