Treasury yield curve steepens as a tax bill nears approval

• Long duration yields spike on tax reform optimism.
• Yield curve flattening to continue in 2018.

The treasury yield curve steepened, i.e. the spread between the US 10-year yield and the 2-year yield rose to 60 basis points on increased prospects of a House and Senate vote on the tax bill in the next 24 to 48 hours.

The 10-year yield rose to 2.472 percent yesterday; its highest level since Oct. 27. Meanwhile, the 2-year yield was largely comatose around 1.85 percent.

However, experts believe the curve could continue flattening in 2018. Bloomberg report says, " The argument for continued flattening and then inversion is fairly straightforward. Long-term rates have remained pretty stable since the Fed began tightening, a result of a low neutral real interest rate, low inflation expectations and a low term premium. Meanwhile, short-term rates move steadily higher. Assuming long rates remain held down, just a handful of rate hikes -- as the Fed anticipates -- would invert the yield curve."