The U.S. Treasury yield curve is on the verge of flashing a warning, and the market narrative may begin to shift toward the risk of economic stagnation.

The U.S. bond market is on the verge of sending a signal: a series of Federal Reserve rate hikes will begin to shift the market narrative toward concerns about the risk of U.S. economic stagnation. Last week, the extra yield investors demanded to hold 10-year Treasuries rather than 2-year Treasuries narrowed to just 17 basis points, the smallest spread since early 2025. This flattening of the yield curve increases the possibility that the 10-year Treasury yield will soon fall below short-term Treasury yields, a closely watched phenomenon known as a "yield curve inversion."