Treasuries: Yield Curve Stays Positive Amid War Risk
The US Treasury yield curve remains firmly in positive territory as March 2026 begins, with the <a href="/posts/2026-02-25/treasuries-rally-accelerates-as-10-year-yield-breaks-below-405-on-growth-fears-and-flight-to-safety">10-year Treasury</a> yield settling at 3.97% and the 2-year note at 3.38% — a spread of 59 basis points. After spending more than two years inverted, the curve normalized in late 2025 as the Federal Reserve cut rates by 69 basis points. But what was a straightforward normalization story has become far more complex: the <a href="/posts/2026-03-02/treasuries-ism-price-surge-sparks-stagflation-fear">ISM Prices index surged to 70.5</a> (versus estimates of 58.2), the Iran military crisis has sent oil prices sharply higher, and <a href="/posts/2026-03-02/mortgage-rates-jump-as-iran-crisis-fuels-inflation">mortgage rates have jumped</a> on war-driven inflation fears. The yield curve's positive slope tells us one thing — the bond market expects the economy to function normally. But the narrowing of the 10Y-2Y spread from 74 basis points in early February to 59 basis points today tells another: uncertainty is compressing the term premium as traders grapple with conflicting signals. A dense <a href="/posts/2026-03-02/treasuries-march-data-barrage-tests-4-floor">macro calendar</a> looms ahead — Non-Farm Payrolls on March 6, CPI on March 11, and the FOMC decision on March 18 — each capable of resetting the curve's trajectory. For bond investors, the question has shifted from "is the curve normalized?" to "can normalization survive a simultaneous supply shock and potential growth scare?"