2024-03-11 12:45:34 ET
Summary
- The Treasury curve moved down 6 basis points at 2 years and was down 10 basis points at 10 years over the last week.
- As a result, the current negative 2-year/10-year Treasury spread widened to negative 39 basis points this week compared to negative 35 basis points a week earlier.
- Unless there is a dramatic yield curve shift, Thursday, March 14 will see a new record for the longest negative 2-year/10-year streak at 424 days.
- The probability that the 2-year/10-year Treasury spread is still negative in the 13 weeks ending September 6, 2024, is 66.9%, compared to 64.0% last week.
- The long-term peak in 1-month forward Treasuries is now 5.06%, down 0.16% from last week and still below the near-term peak at 5.48%.
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 the below graph, which shows the zero-coupon yield curve implied by current Treasury prices compared with the annualized compounded yield on the United States 3-Month Bill Yield (US3M) 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.
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Weekly Forecast, March 8, 2024: Record Negative Treasury Spread Streak Likely On Thursday