Um, Is the US Treasury “Yield Curve” Steepening or Flattening?


by Wolf Richter, Wolf Street:

And how would the housing market digest these kinds of mortgage rates?

In this cycle, the Fed has hiked its target range for the federal funds rate only after meetings that were followed by a press conference. There are four of them scheduled this year – the first one on March 14-15. So, next time the Fed may nudge up its target range (currently 1.25%-1.50%) is 6 weeks away.

The one-month yield of US Treasury securities has vacillated around 1.25% since the last rate hike in December, closing on Friday at 1.24%. The three-month yield has vacillated above 1.4% for a month, closing on Friday at 1.41%. So this end of the curve is waiting till the propitious decision on March 15 gets closer:

About $14.8 trillion of the US government’s $20.5 trillion in debt is publicly traded (the remaining $5.7 trillion is held by internal accounts of the US government, such as Social Security). This makes the Treasury market the most liquid bond market in the world, and its benchmark yields underpin a number of other markets, including the mortgage market.

And unlike Treasuries with shorter maturities, Treasuries with longer maturities have moved in recent weeks, with prices falling and yields rising.

The two-year yield jumped 5 basis points to 2.13% on Friday, the highest since September 2008, continuing the spike that started on September 8, 2017, shortly before the Fed announced the QE Unwind start-date:

The whole mid-range of the yield curve has moved up. The five-year yield jumped 6 basis points to 2.47% on Friday. The seven-year yield rose 5 basis points to 2.60%, up from 2.33% at the end of December.

The chart below shows the “yield curves” as they occurred on these four dates:

  1. Yields on Friday, January 26, 2018 (red line)
  2. Yields on December 29, 2017 (black line)
  3. Yields on August 29, 2017 (green line) two weeks before the QE unwind was detailed.
  4. Yields on December 14, 2016 (blue line) when the Fed stopped flip-flopping, raised its rates, and became a clockwork.

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