Weekly Treasury Simulation, June 6, 2025: Peak In One-Month Forward Rates Drops 0.29%

(15min)

Summary

  • The most likely range for 3-month bill yields is again the 1% to 2% range, now 45 basis points more likely than the 0% to 1% range. Treasury 2-year yields moved to 4.04% this week from 4% last week. At 10 years, this week’s yield is 4.51%, compared with 4.51% last week. As a result, the current 2-year/10-year Treasury spread is now 0.47% compared to 0.51% last week.
  • The maximum probability that the 2-year/10-year Treasury spread is negative in the coming ten years is 25.5% in the 91-day period ending November 19, 2038, unchanged from last week.
  • The long-term peak in 1-month forward Treasuries is now 5.94% and well above the shortest maturity forward rate at 4.28%. Last week’s peak was 6.23%. The longest maturity 1-month forward rate is now 4.47% versus 4.55% last week.

United States Treasury Department Building in Washington DC, USA

traveler1116

Summary

As explained in Prof. Robert Jarrow’s book cited below, forward rates contain a risk premium above and beyond the market’s expectations for the 3-month forward rate. We document the size of that risk premium in this graph, which shows the zero-coupon

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Dr. Donald R. van Deventer has been in the risk management business since completing his Ph.D. in Business Economics at Harvard University in 1977. He founded the Kamakura Corporation in 1990 after 13 years with two of the 10 largest banks in the US and a stint as investment banker in Tokyo. He joined SAS Institute Inc. as co-head, of the Center for Applied Quantitative Finance in 2022 when SAS acquired Kamakura Corporation. At the time Kamakura was acquired by SAS, Kamakura's institutional clients had total assets or assets under management of 48 trillion dollars.

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