VRIG - Weekly Treasury Simulation, April 17, 2025: Most Likely Range For 3-Month Bills In 10 Years Stable At 1% To 2%

2025-04-21 13:49:41 ET

Summary

• The most likely range for 3-month bill yields edged into the 1% to 2% range, just 1 basis point more likely than the 0% to 1% range. Treasury 2-year yields moved to 3.81% this week from 3.96% last week. At 10 years, this week’s yield is 4.34%, compared with 4.48% last week. As a result, the current 2-year/10-year Treasury spread is now 0.53% compared to 0.52% last week.
• The maximum probability that the 2-year/10-year Treasury spread will be negative again in the coming 10 years is 24.9% in the 91-day period ending September 29, 2039, compared to 25.1% last week.
• The long-term peak in 1-month forward Treasuries is now 5.88% and well above the shortest maturity forward rate at 4.36%. The longest maturity 1-month forward rate is now 4.20% versus 4.02% last week.

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 the full 30-year maturity range. The graph also shows a decline in expected yields at a steady pace for the full 30 years. We explain the details below.

For further details see: