Treasury Yields Snapshot: August 29, 2025

As of August 29, 2025, key Treasury yields indicate a normalized curve, with the 10-year at 4.23%, 2-year at 3.59%, and 30-year at 4.92%. This follows a significant period from 2022 into late 2024 where the 10-2 and 10-3mo yield spreads, widely considered reliable recession indicators, were continuously inverted, exhibiting varied lead times to past recessions. Separately, the 30-year fixed mortgage rate is 6.56%, notably declining recently despite the Federal Reserve holding rates steady, and previously showing a disconnect from the Fed's rate cutting cycle.

Analysis

As of August 29, 2025, the U.S. Treasury yield curve has normalized, with the 10-year note at 4.23%, the 2-year at 3.59%, and the 30-year at 4.92%. This normalization follows a prolonged period of inversion, a historically reliable recession indicator. Specifically, the 10-2 year spread was continuously negative from July 2022 to August 2024, and the 10-3 month spread was negative from October 2022 to December 2024. Historically, the lead time from the first inversion to a recession has averaged around 48 weeks, while the time from the curve re-steepening to positive territory has been shorter, averaging between 13 and 18.5 weeks. It is critical to note, however, that these lead times are variable and a false positive occurred in 1998. In a separate but related market, the 30-year fixed mortgage rate stands at 6.56%, having recently declined despite the Federal Reserve holding its policy rate steady. This highlights a notable divergence from short-term monetary policy, suggesting that broader bond market dynamics are currently a more significant driver of mortgage costs.

Key Decisions for Investors

• Given the yield curve has normalized after a prolonged inversion, which historically precedes a recession by a shorter timeframe, investors should heighten their monitoring of coincident and lagging economic indicators for signs of a downturn.
• The divergence between the Federal Funds Rate and mortgage rates suggests that investors in housing or mortgage-backed securities should prioritize analysis of the long-end of the Treasury curve over solely tracking Fed policy announcements to anticipate financing cost trends.
• With the curve now upward-sloping and yields at levels of 4.23% for the 10-year, investors may consider adjusting fixed-income duration by evaluating intermediate and long-term Treasury ETFs, such as VGIT and VGLT, to potentially lock in current yields ahead of any future economic slowdown that could prompt rate cuts.
• While the yield curve is a powerful indicator, the historical data presented includes a false positive and significant variability in recession lead times, warranting caution against using it as a sole market-timing tool.