The two bonds of this particular tale are the 2-year U.S. Government Treasury and the 30-year U.S. Government Treasury. Dissimilar as they may be, their yields are getting closer and closer. You may have heard that the U.S. yield curve is flattening, but sometimes it’s helpful to see it in pictures.
- Over the last year
- The 2-year yield rose 0.69%, or 69 basis points (bps), to 1.8% [Graph 1]
- And the 30-year yield has dropped 0.37% (37 bps) to 2.7% [Graph 2]
- There is now only a 0.9% difference between them [Graph 3], down from a nearly 2% difference a year ago
If the Federal Reserve Board (the Fed) raises the federal funds rate four or five more times over the next 15 months, the 2-year yield could easily approach the 30-year yield.
- The Fed will hike the federal funds rate another 0.25% (25 bps) next week and quite possibly three more times next year
Graph 1: From 12/6/16 to 12/6/17, the 2-year yield rose appreciably from 1.11% to 1.8%.
* Charles Dickens, A Tale of Two Cities, chapter 1, page 1, 1859.
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