Yield curve continues to flatten

The rise in the two-year is driven by investor anticipation of an upcoming federal funds rate increase. Under normal circumstances, longer-term rates would move in corresponding fashion as higher yields are demanded to account for future inflation. Recent increased demand for longer-term government issues has suppressed yields for these issues, with reciprocal effects on prices.

What does it all mean, Basil? On the surface, perhaps we're on the edge of the next recession. But forward equity price-to-earnings ratios, fueled by positive earnings reports, suggest healthy equity markets and investor confidence.