Treasuries
Weakness in equities helped Treasuries recover from last week’s selloffathon. The two-year finished up 4/32, and the ten-year was higher by 15/16. The benchmark curve was 5 basis points steeper on the day, and currently sits at +192 basis points. A basis point represents .01%.
Tuesday will bring another round of Treasury buying by the Fed. Tomorrow they will purchase Treasury notes ranging in maturities from February 2016 to February 2019, and May 2012 to August 2013 on Thursday.
The Treasury will auction $8 billion in 5-year TIPS on Thursday.
Yield Curve Shape
A few people have had questions about what I am trying to show in the area of the table labeled “2 to 10 bps”. The label is an abbreviation for the difference in yield between the 10-year and 2-year Treasuries. This number describes the current shape of the yield curve. A steep yield curve would be characterized by a large 2- to 10-year spread. The current yield curve is considered relatively steep.
The Term Structure of Interest Rates, as it is sometimes called, is a snapshot of what investors require from Treasuries with varying maturities. Investors usually demand a higher return for longer dated bonds in order to be compensated for the additional risk. Because of this the yield curve is almost always upward sloping, but the degree to which it is, otherwise known as its steepness, varies greatly depending on the environment. Factors such as expectations for future inflation, liquidity preferences of investors as a whole and expectations for future Fed policy determine the shape of the yield curve.
Have a great evening.
Cliff J. Reynolds Jr., Junior Analyst
Weakness in equities helped Treasuries recover from last week’s selloffathon. The two-year finished up 4/32, and the ten-year was higher by 15/16. The benchmark curve was 5 basis points steeper on the day, and currently sits at +192 basis points. A basis point represents .01%.
Tuesday will bring another round of Treasury buying by the Fed. Tomorrow they will purchase Treasury notes ranging in maturities from February 2016 to February 2019, and May 2012 to August 2013 on Thursday.
The Treasury will auction $8 billion in 5-year TIPS on Thursday.
Yield Curve Shape
A few people have had questions about what I am trying to show in the area of the table labeled “2 to 10 bps”. The label is an abbreviation for the difference in yield between the 10-year and 2-year Treasuries. This number describes the current shape of the yield curve. A steep yield curve would be characterized by a large 2- to 10-year spread. The current yield curve is considered relatively steep.
The Term Structure of Interest Rates, as it is sometimes called, is a snapshot of what investors require from Treasuries with varying maturities. Investors usually demand a higher return for longer dated bonds in order to be compensated for the additional risk. Because of this the yield curve is almost always upward sloping, but the degree to which it is, otherwise known as its steepness, varies greatly depending on the environment. Factors such as expectations for future inflation, liquidity preferences of investors as a whole and expectations for future Fed policy determine the shape of the yield curve.
Have a great evening.
Cliff J. Reynolds Jr., Junior Analyst
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