Treasury Snapshot, Six Weeks after QE and with the FOMC in Focus

December 15, 2014

by Doug Short

We're now six weeks beyond the end of the Fed's latest round of Quantitative Easing. With QE in the past and the Federal Open Market Commitee taking center stage on Wednesday, let's take a quick look at what's been happening for US Treasuries. The yields on the 10-, 20- and 30 year Treasuries have generally trended downward since the end of 2013. In fact, the 10-year note yield is at its lowest since early June 2013, and the 30-year bond is at its lowest yield since mid-November 2012.

The latest Freddie Mac Weekly Primary Mortgage Market Survey today puts the 30-year fixed at 3.93%, well off its 4.53% 2014 peak during the first week of January.

Here is a snapshot of the 10-year yield and 30-year fixed-rate mortgage since 2008.

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

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.

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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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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