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Note from dshort: The 1.25% decline in the S&P 500 today was accompanied by a rally in Treasuries, as the falling yields illustrate. The 10-year note closed today at 1.93, nine basis points below yesterday's close, 49 basis points below its interim high on October 27, but 21 basis points above its September 22 historic low close of 1.72.


The Federal Reserve officially announced Operation Twist on September 21 with the stated purpose of lowering longer-term interest rates. The yield on the 10-year note had been been below 2.00% 5 of the 9 days prior to the much-rumored announcement, closed at a new low of 1.88% on the day of the announcement and reached the historic closing low of 1.72 the next day, September 22.

What has the 10-year note done since the "Twist" announcement? The interim high daily close was 2.42 on October 27. The interim closing low is the most recent (December 19) close.

It's too soon, of course, to tell how successful the "Twist" strategy will be for lowering interest rates; the program is barely off the ground. According to the Freddie Mac survey, the 30-year mortgage rate has fluctuated between 3.94% and 4.18% since the first week in September, and the most recent average (as of December 15) smack on the bottom of that range at 3.94%. I will continue to watch Treasury yields and mortgage rates in the months ahead to see if Operation Twist lives up to the Fed's expectations.

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.

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

Here's a comparison of the yield curve at two points in time: 1) today's close and 2) the daily close on the market's interim high on April 29th. The S&P 500 is down over 10% since then.


(Click to enlarge)

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

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

The final chart shows the percent change for a basket of eight Treasuries since the initiation of the second round of quantitative easing on November 4th, 2010.

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

Source: Treasuries Update: Yields Drop As Treasuries Rally