Treasuries Update – The Big U-Turn
With investors in major “hate equities” mood, and massive squeezes over the past days, the pain trade is the performance trade among funds and retailers. As people have poured money into “safe yields”, things could get very interesting later this autumn, as there are few out there that give any major squeeze any possibility. Meanwhile here is an update by Doug Short on those “safe” yields….
What’s New: After the yields on several Treasuries hit consecutive new lows earlier in the week, the bond market did a complete about face. For example the benchmark 10-year went from a historic closing yield of 1.43 on Wednesday to 1.58 today. That wouldn’t be so stunning if the 10-year were in the low five percents, which is where it was five years ago before the Great Recession. But at today’s rates, that 15-basis-point jump is a 10.5% increase!
As for the Fed’s, Operation Twist, here is a snapshot of selected yields and the 30-year fixed mortgage since the inception of program.
The 30-year fixed mortgage, according to the latest Freddie Mac weekly survey, is at 3.49, another all-time low. That probably suits the Fed just fine. But, as for loans to small businesses, the Fed strategy is a solution to a non-problem. Here’s a snippet from a recent NFIB Small Business Economic Trendsreport:
| Ninety-three (93) percent of all owners reported that all their credit needs were met or that they were not interested in borrowing. Twenty-nine percent reported all credit needs met, seven percent reported that not all of their credit needs were satisfied and 51% said they did not want. Only 3% reported that financing was their top business problem. |
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.
Now let’s see the 10-year against the S&P 500 with some notes on Fed intervention.
For a long-term view of weekly Treasury yields, also focusing on the 10-year, see my Treasury Yields in Perspective.