- As of Jan. 16, 2026, the Treasury curve is positively sloped, with the 10-year near 4.2% above the 2-year near 3.6% after the 2022–24 inversion.
- Market inflation expectations remain contained, with 5-year breakeven inflation around 2.3% and headline/core inflation easing but still above 2%.
- CBO projections imply Fed cuts may lower short rates in 2026 while 10-year yields drift slightly higher toward ~4.3% by 2028, keeping long borrowing costs elevated.
- For investors, the steeper curve revives intermediate/long-duration yield opportunities but underscores ongoing interest-rate and policy uncertainty.
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The latest Treasury market data as of January 16, 2026 reveals that yield curve inversion—the phenomenon where shorter-term yields exceed longer-term yields—has resolved. The 10-year Treasury yield stands at approximately 4.18-4.24%, while the 2-year yield is around 3.54-3.59%. This produces a 10-2 spread of roughly +0.60-70 basis points, indicating a normal upward sloping curve.
This normalization follows a prolonged period of inversion that persisted from mid-2022 through mid-2024, during which the 2-year yield consistently exceeded the 10-year yield. The shift potentially signals market confidence in medium-term growth and expectations that rate cuts may eventually occur, though not imminently.
Inflation expectations, as inferred from 5-year breakeven inflation rates, have remained relatively stable between 2.28% and 2.37% as of the end of 2025. This suggests inflation is viewed as modestly above target but on a glide path downward rather than spiraling upward.
The Congressional Budget Office’s forecast anticipates Federal Reserve rate cuts during 2026 and projects that 10-year Treasury yields will increase slightly from ~4.1% in late 2025 to about 4.3% by late 2028. This combination suggests that while monetary easing may reduce short-term rates, long-term yields remain pressured upwards by inflation expectations, fiscal concerns, or term premium.
For fixed income investors, the return of a positively sloped curve brings renewed opportunity in locking in higher long-term yields while managing duration risk. Mortgage rate prospects may worsen if long yields creep higher. Policymakers and investors alike will be closely watching upcoming Fed communications, inflation prints, and strength of economic data to see whether inflation remains transitory or persistent. Key open questions remain around the pace and timing of rate cuts, the depth of real (inflation-adjusted) yields, and how global demand for U.S. debt evolves amid U.S. fiscal policy and geopolitical risk.
Supporting Notes
- Yield curve data: 10-year Treasury yield is approximately 4.18% (Federal Reserve H.15 data for Jan 16, 2026) and 2-year yield around 3.54%-3.59% on constant maturity basis.
- GuruFocus shows the 10-2 Treasury yield spread at ~0.65% as of January 13, 2026.
- Breakeven inflation expectations: 5-year breakeven inflation rates approximately 2.28%-2.37% in December 2025 and early January 2026.
- CBO projection: rate cuts expected in 2026 (short-term federal funds) but 10-year Treasury yields projected to edge up to ~4.3% by end of 2028.
- Inflation data: headline inflation stayed at about 2.7% in December 2025, with core inflation near 2.6%, indicating price pressures remain above target but easing.
- Market commentary: Larry Fink (BlackRock) warns that a rise in the 10-year yield above 5% could trigger broader market correction, though such a level is not currently expected.
- Economist surveys: U.S. GDP growth projected near 2.2–2.3% for 2026, with recession risk decreasing but not eliminated.