How Central Banks Use the Term Spread to Gauge Market Stress

Monetary Policy Explained with Fexingo: Central Banks, Money Supply, and Interest Rates · Jul 9, 2026 · 8m · transcript

In this episode of Monetary Policy Explained with Fexingo, Lucas and Luna dive into the term spread — the difference between short-term and long-term interest rates — and why central banks are watching it closely in mid-2026. They explain how a steepening or flattening term spread signals shifts in market expectations for growth, inflation, and policy. Using the current environment as context, they discuss what the spread between the two-year and ten-year Treasury says about investor anxiety, liquidity conditions, and the effectiveness of quantitative tightening. Lucas breaks down the…