Treasury Yield Curve Flattening Again
July 25, 2007
A rally in mid-term and longer-term U.S. Treasuries in July has dropped yields between 10 and 20 basis points on maturities from 2 years to 30 years.
Current US Treasury Yields vs Yields from last month:
3 Month 4.85% vs 4.63%
6 Month 4.84% vs 4.77%
2 Year 4.73% vs 4.87%
3 Year 4.72% vs 4.91%
5 Year 4.78% vs 4.96%
10 Year 4.90% vs 5.08%
30 Year 5.03% vs 5.20%
The spread between the 3-month and 30-year Treasury has narrowed from 57 basis points to 18 basis points meaning once against banks will feel the pressure on profits as their lending margins are decreased. Investors may see a decrease in the yields paid on bond funds, bank deposits, government agency securities where the maturity date or average maturity date of the underlying holdings is 2 years or more. Investments such as mutual fund money markets, bank money market accounts, commercial paper, and bond funds with an average maturity date of 2 years or less are not expected to drop rates/yields as quickly, if at all. Recent history has suggested that if the yield curve does invert, that a recession may not necessarily be right around the corner. The main concern for investors should be the continued effect on banks and the availability of safe income-producing investment with yields of 5% or higher.
