US Treasury Yield Curve
US Treasury Yield Curve
| Category | 1M | 3M | 6M | 1Y | 2Y | 3Y | 5Y | 7Y | 10Y | 20Y | 30Y |
|---|---|---|---|---|---|---|---|---|---|---|---|
| One Month Ago | 4.42 | 4.36 | 4.29 | 4.22 | 4.37 | 4.46 | 4.59 | 4.7 | 4.78 | 5.06 | 4.98 |
| Today's | 4.37 | 4.34 | 4.33 | 4.27 | 4.31 | 4.31 | 4.39 | 4.46 | 4.52 | 4.79 | 4.72 |
| Year Ago | 5.48 | 5.43 | 5.31 | 4.94 | 4.56 | 4.38 | 4.25 | 4.27 | 4.27 | 4.57 | 4.45 |
Analysing US Yield Curve Movement
Comparing today’s yield curve with the yields of the previous day and the previous week.US Yield Curve a Week Ago
| Category | 1M | 3M | 6M | 1Y | 2Y | 3Y | 5Y | 7Y | 10Y | 20Y | 30Y |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Today | 4.37 | 4.34 | 4.33 | 4.27 | 4.31 | 4.31 | 4.39 | 4.46 | 4.52 | 4.79 | 4.72 |
| Week Ago | 4.37 | 4.34 | 4.28 | 4.19 | 4.21 | 4.23 | 4.28 | 4.36 | 4.45 | 4.7 | 4.65 |
| Difference | 0.00 | 0.00 | 0.05 | 0.08 | 0.10 | 0.08 | 0.11 | 0.10 | 0.07 | 0.09 | 0.07 |
US Yield Curve a Day Ago
| Category | 1M | 3M | 6M | 1Y | 2Y | 3Y | 5Y | 7Y | 10Y | 20Y | 30Y |
|---|---|---|---|---|---|---|---|---|---|---|---|
| Today | 4.37 | 4.34 | 4.33 | 4.27 | 4.31 | 4.31 | 4.39 | 4.46 | 4.52 | 4.79 | 4.72 |
| A Day Before | 4.38 | 4.35 | 4.33 | 4.3 | 4.36 | 4.37 | 4.48 | 4.56 | 4.62 | 4.9 | 4.83 |
| Difference | -0.01 | -0.01 | 0.00 | -0.03 | -0.05 | -0.06 | -0.09 | -0.10 | -0.10 | -0.11 | -0.11 |
Inversion and Steepness of the Yield Curve
A normal yield curve slopes upward as the long-term treasury bonds or bonds with longer maturities typically yield higher returns due to higher risk associated with their investments. However, if investors are concerned about an economic downturn in the future, they rush to park their money in safer long-term bonds. At this point, yields start to fall and the spread between the long-term yields and the short-term yields becomes narrower. Steepness in the curve is observed during economic expansion, when the long-end is markedly higher than the short-end.Historical 10-Year and 1-Year Treasury Rates
Inversion History (10Y - 2Y Yields)
What is the US Treasury yield curve?
As the name implies, a yield curve is a curve (chart) that shows the yields asked by the investors to buy US Treasury Bonds. It has bond maturities on the x-axis and the yields (interest rates) on the y-axis. The short-term end of the curve refers to the yields the US treasury has to pay on one-month to two-year maturity debt. The long-term end refers to the yields for longer maturities, such as 10-year to 30-year bonds. US treasury yields are also called "risk-free" rates, as no one expects the US govt to default.
Why do smart investors follow the yield curve?
Yield Curve is a snapshot of the investor's view of the markets. It shows how the investor's expect markets to behave in the short-term as well as the long-term. Usually, the short-term rates are lesser than the long-term rates as the investors want to be compensated more for risk of giving their money for longer duration. However, sometimes, the yield curve "inverts". In other words, the short-term yields are higher than longer-term yields. Historically, a yield curve inversion has always preceded a "recession".
Why do inverted yield curve indicate recession?
It's very simple. All business need loans to grow their businesses. The loans that they take are "short-term" loans typically to build factories, buildings, buy inputs, manufacture finished goods, marketing and several other capital expenditures and expenses. These expenses are expected to provide revenues in the future, which typically arrive in longer duration. So a typical, business takes on short-term risk (loan) for long-term (rewards).
If the yield curve is upward sloping, then the long-term rewards are higher than the short-term borrowing costs. So, it makes sense to grow business and deploy capital. However, if the short-term borrowing costs are high and long-term returns are low, then a lot of projects do not make economic sense and hence the business put a break on growth and capital spend. This in turn leads to hiring freezes. If short term rates remain higher for long period, then companies expenses rise, and they may also end up laying off excess employees.