Friday, 20 July 2012

Treasuries Update: More Historic Low Yields

The eurozone debt crisis is back on the front burner. European indexes plunged today as Spanish yields soared back above 7%. US markets also retreated, but more dramatic was the drop in US Treasury yields to new or near new lows. The 5-year closed at an all-time low of 0.59 and the 3-year tied its all-time low of 0.29. The 10- and 30-year instruments are both two basis points above its record closing low, and the 20-year is four basis points above its low.

As for the Fed's, Operation Twist, here is a snapshot of selected yields and the 30-year fixed mortgage since the inception of program.

The 30-year fixed mortgage, according to the latest Freddie Mac weekly survey, is at 3.53, another all-time low. That probably suits the Fed just fine. But, as for loans to small businesses, the Fed strategy is a solution to a non-problem. Here's a snippet from a recent NFIB Small Business Economic Trendsreport:
Ninety-three (93) percent of all owners reported that all their credit needs were met or that they were not interested in borrowing. Twenty-nine percent reported all credit needs met, seven percent reported that not all of their credit needs were satisfied and 51% said they did not want. Only 3% reported that financing was their top business problem.
Background Perspective on Yields
The first chart shows the daily performance of several Treasuries and the Fed Funds Rate (FFR) since 2007. The source for the yields is the Daily Treasury Yield Curve Rates from the US Department of the Treasury and the New York Fed's website for the FFR.

The next chart shows the 2- and 10-year yields with the 2-10 spread highlighted in the background. Many would argue (including me) that the Fed's FFR management reduces the value of the 2-10 spread as an economic indicator.

The final chart is an overlay of the 10-Year Treasury Note and the S&P 500.

For a long-term view of weekly Treasury yields, also focusing on the 10-year, see my Treasury Yields in Perspective.

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