Eyes on the Curve: Still upward sloping, but...

In the morning meeting today, Keith highlighted as a marginal negative the yield curve. On November 10th, 2-year treasuries were trading at a yield of 1.27% and 10-year treasuries were trading at a yield of 3.82% for a spread of 2.55%. As of yesterday, 2-year treasuries were yielding 1.31% and 10-year Treasuries were yielding 3.35% for a spread of 2.04%, so in the space of two weeks the spread between 2s and 10s has narrowed by 51 basis points.

When we highlighted the yield curve on October 30th, 2008 in our note, “Yield Curve: Steep and Steepening”, the spread was 235 basis points and while the curve continued to steepen immediately following that note, yields at the long end of the curve have started to come in once again.

On the margin, this is incrementally negative and foretells, once again, of a slightly tighter credit environment and an economic recovery that could take some time to play itself out. That said, the curve is still upward sloping, which implies that interest rates should rise in the future as growth begins to reaccelerate.

We will continue to have our Eyes on the curve.

Daryl Jones
Managing Director

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