Treasuries: The Yield Curve Has Normalized After Two Years of Inversion — What the 60-Basis-Point Spread Signals for Bonds, the Fed, and Your Portfolio
After spending more than two years inverted — the longest stretch in modern history — the US Treasury yield curve has decisively normalized. The 10-year Treasury yield stood at 4.08% on February 19, 2026, while the 2-year note yielded 3.47%, producing a positive spread of 61 basis points. That gap has narrowed from 74 basis points just two weeks earlier, but the broader story remains: the curve is no longer flashing the recession warning that dominated bond market commentary from mid-2022 through most of 2025. The normalization has been driven by the Federal Reserve's rate-cutting campaign. After holding the federal funds rate at 4.33% for five consecutive months through July 2025, the Fed began easing in the autumn, bringing the rate down to 3.64% by January 2026 — a cumulative 69 basis points of cuts. Short-term Treasury yields have followed the policy rate lower, while long-term yields have declined more gradually, reflecting persistent fiscal concerns and inflation expectations that remain above the Fed's 2% target. For bond investors, this represents a meaningful shift in the opportunity set. The days of earning higher yields on short-term bills than long-term bonds are over. The question now is whether the normalization signals that the recession the inverted curve was supposedly predicting has been avoided entirely — or is merely delayed.