US Treasury yields moved toward a flatter curve on Tuesday. Traders took profits after a rally in rates. Federal Reserve officials repeated a cautious view on inflation and said they want to wait for more data before changing policy. They also noted that AI is unlikely to change the short-term neutral rate.
Markets now look to Wednesday’s US data, including durable goods orders and industrial production. TD Securities expects durable goods orders to fall 2.8% month over month, which is weaker than the consensus forecast. TD also expects industrial production to come in broadly in line with consensus.
Focus Shifts To Key Us Data
The FOMC minutes are also due Wednesday afternoon. They may offer more detail on disagreements within the committee. But the minutes may be less useful because newer inflation and jobs data have been released since that meeting.
A similar pattern played out in February last year. The yield curve flattened as investors took profits. Fed officials also urged patience then, while markets had rallied strongly on expectations of rate cuts. It was a reminder that monetary policy rarely follows a straight line.
We are seeing the same caution today. January 2026 CPI came in at 3.1%, a bit above forecasts. At the same time, the jobs report was very strong, adding 353,000 positions. Together, these numbers give the Fed little reason to ease policy soon. The latest data supports the Fed’s patient approach.
The 2s/10s Treasury spread is still inverted at about -25 basis points. This points to uncertainty around when cuts might begin. In this kind of market, some traders may prefer defined-risk strategies that benefit from time decay, such as selling short-dated credit spreads on interest-rate ETFs. This approach can work when markets are waiting for a clear catalyst.
Positioning For A Flatter Curve
With this backdrop, curve-steepening trades may struggle in the near term. One alternative is to use calendar spreads on SOFR futures. This reflects a view that near-term rate expectations stay anchored, while longer-dated contracts can still move. It offers exposure to volatility without making a direct bet on the overall direction of the yield curve.
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