The Narrowing Yield Curve

On Friday, the one-, two- and three-year treasuries all closed at their highest yields since August 2008.

The six-month yield did the same but it came on Thursday, and the three-month’s came on Monday. The one-month yield’s long-term high came last month.

Here’s a look at the two-year yield since August 2008:

None of this is a big surprise. The early part of the yield curve is rising, and that’s what higher rates from the Fed is all about. But what about the long end? Earlier this year, the 10-year yield looked like it was about to bust through 3%…but it never could.

The 10-year recently fell below 2.75% but has now made another run at 3%. On Friday, the 10-year closed at 2.96%. The 3% line has been very difficult for the 10-year to break. The highest yield for the 10-year since mid-2011 is 3.04%. In other words, we’re very close to a multi-year high.

This week, the 2/10 spread got as low at 41 basis points. That got a lot of attention. As readers know, I’ve been a fan of the 2/10 spread for a long time, so it’s odd for me to see it get so much attention recently.

That’s why I feel like I have to remind investors that the 2/10 spread is still a long way from indicating danger. Put it this way: in the last cycle, the 2/10 spread hit 41 basis points in May 2005. That was 2-1/2 years before the recession started. Remember, a negative 2/10 is not a tripwire. It’s a warning signal.

Posted by on April 23rd, 2018 at 8:28 am


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