Summer will bring deeper yield curve inversions on both sides of the Atlantic Summer will bring deeper yield curve inversions on both sides of the Atlantic Summer will bring deeper yield curve inversions on both sides of the Atlantic

Summer will bring deeper yield curve inversions on both sides of the Atlantic

Althea Spinozzi

Head of Fixed Income Strategy

Summary:  From today, the US yield curve is the most inverted since 1981 as front-term yields outpace the rise of long-term yields. The bond market is pushing interest rate cuts further down the line while pricing higher chances for a rate hike this month. Yield curves on both sides of the Atlantic are poised to further bear-flatten this summer as front-term yields need to catch up with their swaps. Although that might provide better entry points, the front part of the yield curve already provides enticing returns for buy-to-hold-investors seeking to create a bond ladder. Yet, investors should be wary about adding duration risk to their portfolio as long-term yields remain in an uptrend amid a resilient economy. Opportunities for a barbell might open at the end of summer.

With the Independence Day holiday at the doors, markets will have reduced flows today and tomorrow. However, starting from Wednesday, liquidity will return to the US with the release of the FOMC minutes. Jobs data on Friday are critical ahead of the July Federal Reserve meeting, although we don't expect a slightly weaker reading to stop Powell from hiking again. Yet, a surprise on either side might move bond futures, which are now taking another rate hike for granted but struggling to price a second one.

We expect the yield curve to continue to bear-flatten throughout summer, led by the rise of front-term yields.

Today, the spread between 10-year and 2-year US Treasuries broke below March lows, falling to -110 basis points in the morning for the first time since 1981.

The US yield curve will continue to invert for a straightforward reason: short-term yields will likely surge to catch up with the DOT plot and as markets push further down the line expectations of a rate cut.

Long-term yields still have room to move slowly upward if the economy remains resilient; otherwise, they will drop if a recession is forecasted. Either way, the yield curve is meant to flatten, and it could continue to invert to test the 1981 low of -154bps.

Source: Bloomberg,

Ten-year yields are likely to rise to test 4% as inflation and activity data remain resilient. Last week’s core PCE index came at 4.9%, well above the Federal Reserve target, while the Consumer confidence number for June came at 109.7 versus a neutral 100. Tha puts upwards pressure for yields across the yield curve, particularly on short-term yields.

Source: Bloomberg.

The yield curve flattening trend is poised to accelerate in Europe

The inversion trend might accelerate in the old continent during summer as swap spreads in Germany and in the UK remain well above the US one, indicating that two year Gilts and Schatz are trading rich on the curve, and in relationship to their swaps.

Source: Bloomberg.

What does that mean?

  • It means that bonds with short-term maturities might cheapen further. Therefore, a better entry point might present itself in the next few weeks. However, we believe that already now the front part of the yield curve offers enticing returns for buy-to-hold-investors, which are seeking to create a bond ladder.  
  • Investors should be wary about adding onto duration risk. Long-term bonds’ market value suffers from larger moves as interest rates change. Thus, as long-term yields remain in an uptrend due to a resilient economy, it might not be prudent to add on duration risk yet.
  • It might soon shape the perfect environment for a barbell, which will allow investors to take advantage of high interest rates in the short part of the yield curve, while benefitting from long-term bonds’ convexity.

Please refer to this link to find short-term instruments and ETFs.


Saxo Capital Markets (Australia) Limited prepares and distributes information/research produced within the Saxo Bank Group for informational purposes only. In addition to the disclaimer below, if any general advice is provided, such advice does not take into account your individual objectives, financial situation or needs. You should consider the appropriateness of trading any financial instrument as trading can result in losses that exceed your initial investment. Please refer to our Analysis Disclaimer, and our Financial Services Guide and Product Disclosure Statement. All legal documentation and disclaimers can be found at

The Saxo Bank Group entities each provide execution-only service. Access and use of Saxo News & Research and any Saxo Bank Group website are subject to (i) the Terms of Use; (ii) the full Disclaimer; and (iii) the Risk Warning in addition (where relevant) to the terms governing the use of the website of a member of the Saxo Bank Group.

Saxo News & Research is provided for informational purposes, does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. No Saxo Bank Group entity shall be liable for any losses that you may sustain as a result of any investment decision made in reliance on information on Saxo News & Research.

To the extent that any content is construed as investment research, such content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication.

None of the information contained here constitutes an offer to purchase or sell a financial instrument, or to make any investments.Saxo Capital Markets does not take into account your personal investment objectives or financial situation and makes no representation and assumes no liability as to the accuracy or completeness of the information nor for any loss arising from any investment made in reliance of this presentation. Any opinions made are subject to change and may be personal to the author. These may not necessarily reflect the opinion of Saxo Capital Markets or its affiliates.

Please read our disclaimers:
- Full Disclaimer (
- Analysis Disclaimer (
- Notification on Non-Independent Investment Research (

Saxo Capital Markets (Australia) Limited
Suite 1, Level 14, 9 Castlereagh St
Sydney NSW 2000

Contact Saxo

Select region


The Saxo trading platform has received numerous awards and recognition. For details of these awards and information on awards visit

Saxo Capital Markets (Australia) Limited ABN 32 110 128 286 AFSL 280372 (‘Saxo’ or ‘Saxo Capital Markets’) is a wholly owned subsidiary of Saxo Bank A/S, headquartered in Denmark. Please refer to our General Business Terms, Financial Services Guide, Product Disclosure Statement and Target Market Determination to consider whether acquiring or continuing to hold financial products is suitable for you, prior to opening an account and investing in a financial product.

Trading in financial instruments carries various risks, and is not suitable for all investors. Please seek expert advice, and always ensure that you fully understand these risks before trading. Saxo Capital Markets does not provide ‘personal’ financial product advice, any information available on this website is ‘general’ in nature and for informational purposes only. Saxo Capital Markets does not take into account an individual’s needs, objectives or financial situation. The Target Market Determination should assist you in determining whether any of the products or services we offer are likely to be consistent with your objectives, financial situation and needs.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the US and other countries. AppStore is a service mark of Apple Inc.

The information or the products and services referred to on this website may be accessed worldwide, however is only intended for distribution to and use by recipients located in countries where such use does not constitute a violation of applicable legislation or regulations. Products and Services offered on this website is not intended for residents of the United States and Japan.

Please click here to view our full disclaimer.