Inter-market: Notable divergence btw 2, 30-y US Treasury yields

Since early May, a notable divergence is occurring in the long vs short end of the US Treasury curve, with the 2-year US Treasury yield having seen a substantial recovery off lows, last at 0.79%, while the 30-year Treasury yield has continued to move lower.

The current environment in the US Treasuries can be defined as Bear flattener, as short-term interest rates increase at a faster pace than long-term interest rates, which remain depressed, despite the recovery seen during last Monday's 'risk on' day.

The current bear flattener environment communicates that market perceives inflation in the US under control, in line with the global deflationary theme, with the US Dollar likely to remain well bid off bottom edges as the market re-prices the possibility of at least another rate hike by the end of the year.

The XFFE (Fed fund rates) contract has been on a steady rise since early May, backing up the short-end of the US yield curve.