TBT - Weekly Treasury Forecast June 14 2024: Waiting For The Fed
2024-06-17 12:04:21 ET
Summary
- The Treasury curve was down 20 basis points at 2 years and was down 23 basis points at 10 years over the last week.
- As a result, the current negative 2-year/10-year Treasury spread widened to negative 47 basis points this week, compared to negative 44 basis points a week earlier.
- The current negative 2-year/10-year Treasury spread is the longest such streak since the launch of the 2-year note in 1976.
- The probability that the 2-year/10-year Treasury spread is still negative in the 13 weeks ending December 13, 2024 is 73.4%, compared to 74.2% last week.
- The long-term peak in 1-month forward Treasuries is now 5.11%, down 0.14% from last week, and well below the near-term peak at 5.51%.
As explained in Prof. Robert Jarrow's book, cited below, forward rates contain a risk premium above and beyond the market's expectations for the 3-month forward rate. We document the size of that risk premium in this graph, which shows the zero-coupon yield curve implied by current Treasury prices compared with the annualized compounded yield on 3-month Treasury bills that market participants would expect based on the daily movement of government bond yields in 14 countries since 1962. The risk premium, the reward for a long-term investment, is large and widens over most of the 30-year maturity range. The graph also shows a sharp downward shift in expected yields in the first few years, then the decline continues at a slow but steady pace for the full 30 years. We explain the details below.
Weekly Treasury Forecast, June 14, 2024: Waiting For The Fed