The spread between 2-year and 10-year U.S. Treasury yields narrowed to 17 basis points last week, its smallest level since early 2025, after the Federal Reserve delivered its first rate increase in three years and signaled further tightening. The market has priced in at least three additional 25-basis-point increases over the next year. The 10-year yield is around 5.2% and the 2-year yield about 4.9%, with the spread now fluctuating near 30 basis points after reaching the 17-basis-point low. Yield curve inversion has preceded every U.S. recession since the 1960s, but its forecasting record has come under scrutiny after inversions in 2022 were not followed by a recession within 12 months. Policymakers place greater weight on the 3-month/10-year spread, which remains relatively steep. The flattening has pressured bank stocks by threatening net interest margins, with the KBW Bank Index down more than 10% from its recent high and in a technical correction. Strategists are divided: some expect the 2s10s curve to steepen as tightening expectations are already heavily priced, while others are positioning for inversions over the next six months. Bloomberg economists have raised their U.S. third-quarter growth forecast, and strong demand data has made a sharp slowdown harder to envision.