Treasuries Catch Fire and Yields Implode

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 |  Includes: IEF, SHY, TLT
by: Doug Short

Quick Take: Yesterday's market thrashing was accompanied by an unsurprising flight to Treasuries — despite lingering anxieties about sovereign debt. The 10-year note is down an astonishing 51 basis points over the past five sessions and down 71 basis points since the June 30th conclusion of QE2. That's the lowest 10-year yield since October 13th of last year, which was about three weeks before the inception of QE2.


The behavior of Treasuries has been an area of special interest in light of the Fed's second round of quantitative easing, which was formally announced on November 3rd and ended on June 30th. The first chart shows the percent change for a basket of eight Treasuries since November 4th.

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The next 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.

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Here's a closer look at the past year with the 30-year fixed mortgage added to the mix (excluding points).

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Here's a comparison of the yield curve at three points in time: 1) the Fed's QE2 announcement, 2) the February interim high for the 7, 10, 20 and 30-year yields 3) and the latest curve.

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The next chart shows the 2- and 10-year yields with the 2-10 spread highlighted in the background.

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The final chart is an overlay of the CBOE Interest Rate 10-Year Treasury Note (TNX) and the S&P 500.

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