Yield Curve Re-Normalization: Fixed Income in a Stagflationary Cycle

The US yield curve is positive again. After an extended inversion that lasted through much of 2024 and 2025, the 10-year Treasury now yields 4.57% against the 2-year at 4.21%, a spread of +36 basis points as of July 12. That spread sounds modest. Historically, it signals something consequential: the bond market is pricing in that short-term rates will eventually fall, even as long-term inflation expectations stay elevated. For fixed income investors trying to position in the current stagflationary environment, that gap is the entire thesis. Key Takeaways The 10Y-2Y Treasury spread reached +36 basis points on July 12, ending a prolonged inversion and reopening the case for duration exposure.…