Treasuries Update: Yet More Historic Low Yields

by: Doug Short

The eurozone debt crisis remains on the front burner. European indexes plunged again Monday and Spanish yields soared to new highs. The selloff continued in U.S. markets, and we saw more new closing lows in Treasury yields.

Of the instruments I track, I noted new closing low for the 3-year at 0.28, the 5-year at 0.57, the 7-year at 0.93 and the 30-year at 2.52. The 10-year at 1.47 matches the closing low of June 1st. The 20-year at 2.15 is two basis points off its historic 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 Trends report:

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 U.S. Department of the Treasury and the New York Fed's website for the FFR.

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Now let's see the 10-year against the S&P 500 with some notes on Fed intervention.

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The final 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.

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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.