5Y vs 2Y Treasury Yield
The 5-year Treasury yield closed at 3.94 percent on April 23, 2026, and the 2-year at 3.78 percent on April 24, 2026, putting the 5Y-2Y spread at approximately 16 basis points. The spread captures market expectations for Fed policy over the next two to five years: when 5Y is well above 2Y, markets price stable or rising rates further out; when the spread inverts, markets price aggressive cuts within the medium term.
Also known as: 5Y Treasury Yield (5Y yield, 5 year treasury) · 2Y Treasury Yield (2Y yield, 2 year treasury)
Why This Comparison Matters
The 5-year Treasury yield closed at 3.94 percent on April 23, 2026, and the 2-year at 3.78 percent on April 24, 2026, putting the 5Y-2Y spread at approximately 16 basis points. The spread captures market expectations for Fed policy over the next two to five years: when 5Y is well above 2Y, markets price stable or rising rates further out; when the spread inverts, markets price aggressive cuts within the medium term. The 16 bp spread reflects a narrow expectation that the Fed will hold rates near current levels (3.50 to 3.75 percent fed funds) through 2026 and then ease modestly toward a 3 to 3.5 percent neutral by 2028. The spread inverted to negative 30 bps during 2022 to 2023 (rate-hiking cycle), bottomed at negative 60 bps in late 2022, and uninverted in mid-2024.
The April 2026 Configuration
The 5Y-2Y spread at 16 bps reflects an unusually flat belly. The 2Y at 3.78 percent sits just above the upper bound of the 3.50 to 3.75 percent fed funds range, indicating markets price approximately one Fed cut over the next 12 to 18 months. The 5Y at 3.94 percent prices in approximately 80 bps of cumulative cuts over five years (markets implying terminal fed funds near 3 percent by 2031).
The flat belly in April 2026 is consistent with three macro inputs. First, sticky inflation: March 2026 CPI at 3.3 percent year over year keeps the Fed in restrictive territory. Second, Iran war oil shock: WTI at $95.85 raises near-term inflation expectations, supporting front-end yields. Third, fiscal uncertainty: long-end term premium has rebuilt, but the belly remains compressed because expected-rate-path is the dominant driver at 2 to 5 year maturities.
What the Spread Measures
The 5Y-2Y spread isolates expected Fed policy 2 to 5 years out, with minimal term premium contribution. The 2Y yield approximates the average expected fed funds rate over the next 24 months. The 5Y yield approximates the average expected fed funds rate over the next 60 months. The spread therefore equals the average expected fed funds rate from years 2 through 5 minus the average expected rate over years 0 through 2.
When 5Y is above 2Y by a positive amount, markets expect fed funds to be higher in years 2 to 5 than in years 0 to 2 (Fed hiking cycle, or hiking re-acceleration). When 5Y is below 2Y (inverted), markets expect fed funds to be lower in years 2 to 5 than years 0 to 2 (Fed cutting cycle baked in). The current 16 bp positive spread suggests roughly stable rates with modest medium-term easing.
The 2022-2024 Inversion Cycle
The 5Y-2Y spread provides the cleanest reading of Fed-cut expectations during hiking cycles. From early 2022 through mid-2024, the spread was deeply inverted as markets priced eventual Fed cuts even while the Fed continued hiking. The spread peaked at negative 60 bps in late 2022 (markets pricing 200+ bps of cumulative cuts over 5 years from then-fed funds of 4.50 percent toward expected terminal of approximately 2.5 percent).
The inversion timeline: spread inverted in March 2022 (Fed first hike), deepened through 2022 to negative 60 bps, started compressing in 2023 as Fed signaled approach to peak, uninverted in mid-2024 as Fed began the easing cycle, and stabilized in the negative 10 to positive 30 bps range through 2025 to 2026 as Fed cuts moderated to 100 bps total (September through December 2024) followed by extended pause.
Conditional Forward Response (Tail Events)
How 2Y Treasury Yield has historically behaved in the 5 sessions following a top-decile or bottom-decile daily move in 5Y Treasury Yield. Computed from 1,245 aligned daily observations ending .
Following these triggers, 2Y Treasury Yield rises 3.85% on average over the next 5 sessions, versus an unconditional baseline of +1.48%. 125 qualifying events; 2Y Treasury Yield closed positive in 61% of them.
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Frequently Asked Questions
What is the current 5Y-2Y Treasury spread?+
The 5-year Treasury yield closed at 3.94 percent on April 23, 2026, and the 2-year at 3.78 percent on April 24, 2026, putting the 5Y-2Y spread at approximately 16 basis points. The 2Y at 3.78 percent sits just above the upper bound of the 3.50 to 3.75 percent fed funds range, indicating markets price approximately one Fed cut over the next 12 to 18 months. The 5Y at 3.94 percent prices in approximately 80 bps of cumulative cuts over five years. The spread is in the middle of the post-2022 range; the long-run average is approximately 50 bps.
What does the 5Y-2Y spread measure?+
The 5Y-2Y spread isolates expected Fed policy 2 to 5 years out with minimal term premium contribution. The 2Y yield approximates the average expected fed funds rate over the next 24 months; the 5Y yield approximates the average expected fed funds rate over the next 60 months. The spread equals the average expected fed funds rate from years 2 through 5 minus the average expected rate over years 0 through 2. Positive spread indicates expected hiking or rising rates; inverted spread indicates expected cutting cycle. The current 16 bp positive spread suggests roughly stable rates with modest medium-term easing.
How does 5Y-2Y compare to 10Y-2Y as a recession indicator?+
The 5Y-2Y inverts approximately 6 to 12 months before the 10Y-2Y inverts during hiking cycles. The 2022 cycle illustrated this: 5Y-2Y inverted March 2022 (Fed first hike), 10Y-2Y inverted July 2022 (four months later). The 5Y-2Y is an earlier-warning signal but produces more false signals than 10Y-2Y. The Cleveland Fed and academic literature use the 10Y-2Y or 10Y-3M spread for recession probability models because 5Y-2Y has more noise; 5Y-2Y is the better real-time read on Fed-cut pricing specifically.
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