What are US Treasury interest rates telling us?

The short answer is a mixed one. 

Let’s take a look at the 2-year Treasury yield from February 11, 2021 and compare it to its yield noted for the latest available data as of February 11, 2022. Last February’s yield stood at 0.11% and it now stands at 1.50%. Based on those numbers, we can say that the upward pressure in rates could come from the inflation premium. 

However, when we look at the longer-end of the yield curve, namely the 30-year bond, we get a different picture. On February 11, 2021 the 30-year yield stood at 1.94%, and it now stands at 2.24%. In addition, the yield was essentially flat during this week – one in which inflation fear spiked after the printed CPI stood at 7.48%.  This tells us that inflation risk has not yet gotten out of hand. It tells us that market participants still believe that the Federal Reserve will succeed in taming the increases in prices. 

Pay attention to the 30-year bond. It will give you a pulse of what the market really things about inflation risk.