When the spread between the 2-year and 10-year note contracts, it is generally indicative of slowing economic conditions.
We have already witnessed a dramatic reversal in this spread, as you can see in the chart below.
Lots of potential implications:
1) earnings growth predicated on a strong economy may be overestimated;
2) bank profits tend to be pressured as the profit spread from “borrow” short and lend “long” pinches profit.
Granted, now that we have morphed into monetary Never-Never Land, the implications aren’t that simple for banks. But, it is something to keep an eye on.