Flight To Treasuries Dramatically Accelerates
Doug Short | Jul 06, 2016 12:36AM ET
Note: We've update this commentary with data through yesterday's market close.
Let's take a closer look at US Treasuries in the wake of the turmoil in Europe following the Brexit, leave vote in the UK. The flight to Treasuries has accelerated dramatically, with the yield on the 10-, 20- and 30-year instruments hitting record lows.
The yield on the 10-year note ended the day yesterday at 1.37%, down nine BPs from the previous close and dropping below its previous record close of 1.43% on July 25, 2012. The 30-year bond closed at 2.14%, which is 3 BPs below where the 10-year note closed at the end of 2015.
Here is a table showing the yields highs and lows and the FFR since 2007 as of the July 5th close. Three of the four have hit new lows.
The 2-10 yield spread has dropped to 0.81%, the lowest since early June 6th of 2007, about six months before the onset of the Great Recession, as we've illustrated below.
The chart shows the daily performance of several Treasuries and the Fed Funds Rate (FFR) since 2007. The source for the yields is the Fed Funds Rate .
h3 A Long-Term Look at the 10-Year Note Yield/h3
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). The trendline (the red one) connects 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.
The dashed lines on the chart above were provided by Bob Bronson of Bronson Capital Markets Research. Bob comments:
h3 The 30-Year Fixed Rate Mortgage/h3"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."
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The latest Freddie Mac Weekly Primary Mortgage Market Survey puts the 30-year fixed at 3.57%, the lowest since May 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.
For a long-term view of weekly Treasury yields, also focusing on the 10-year, see our Treasury Yields in Perspective , which we usually update on weekends.
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