Treasury Snapshot: Where Are Yields Headed?

January 19, 2015

by Doug Short

With Quantitative Easing behind us and the first FOMC meeting of 2015 still a week away, let's take a quick look at US Treasuries. The yields on the 10-, 20- and 30 year Treasuries have trended downward rather dramatically since the end of 2013. They hit their recent lows on Thursday of last week (January 15th). The 30-year yield hit an all-time closing low of 2.40% and the 20-year yield was 2.12%, one bp off its historic low. The yield on the 10-year Note closed at 1.77%, substantially off its 3.04% close at the end of 2013 but above its 1.43% historic low in July of 2012.

With central bank actions in Europe now center stage and the backdrop drama of falling oil prices, a flight to safety could push Treasury yields yet lower in 2015.

A Perspective on Yields Since 2007

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.

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10-Year Note Yield

A log-scale snapshot of the 10-year yield offers a more accurate view of the relative change over time. Here is a long look since 1965, starting well before the 1973 Oil Embargo that triggered the era of "stagflation" (economic stagnation with inflation). I've drawn a trendline (the red one) connecting the interim highs following those stagflationary years. The red line starts with the 1987 closing high on the Friday before the notorious Black Monday market crash. The S&P 500 fell 5.16% that Friday and 20.47% on Black Monday.

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The dashed lines on the chart above were provided by my friend and mentor Bob Bronson of Bronson Capital Markets Research. Bob comments:

"The blue dashed lines are much more closely parallel to the all-data, log-linear best fit line – very similar to the high-low mid-channel line - since 1980. Then there is the even more currently relevant downtrend (black dashed line) since the 2007 high."

The 30-Year Fixed Rate Mortgage

The latest Freddie Mac Weekly Primary Mortgage Market Survey puts the 30-year fixed at 3.66%, well off its 4.58% interim high in the summer of 2013. Here is a long look back, courtesy of a FRED graph, of the Freddie Mac weekly survey on the 30-year fixed mortgage, which began in May of 1976.

Now let's see the 10-year against the S&P 500 with some notes on Federal Reserve intervention. Fed policy has been a major influence on market behavior.

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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, which I update on weekends.

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