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Treasuries Yawn As Stock Markets Stage Huge Rally.

  • Written by Syndicated Publisher No Comments Comments
    November 29, 2011

    With the huge rally in Europe and echo rally in the US, one would have expected Treasuries to tumble and yields to rise. But such was not the case. The yield on the 10-year note closed at 1.97, unchanged from Friday. Despite the equity market mania and press reports of record Black Friday and Cyber Monday sales, the bond market remains skeptical.


    The Federal Reserve officially announced Operation Twist on September 21 with the stated purpose of lowering longer-term interest rates. The yield on the 10-year note had been been below 2.00% 5 of the 9 days prior to the much-rumored announcement, closed at a new low of 1.88% on the day of the announcement and reached the historic closing low of 1.72 the next day, September 22.

    What has the 10-year note done since the “Twist” announcement? The interim high daily close was 2.42 on October 27. The interim low was 1.89 at the November 23 close.

    It’s too soon, of course, to tell how successful the “Twist” strategy will be for lowering interest rates; the program is barely off the ground. According to the Freddie Mac survey, the 30-year mortgage rate has fluctuated between 3.94% and 4.18% since the first week in September, and the most recent average (as of November 23rd) is 3.98%. I will continue to watch Treasury yields and mortgage rates in the weeks ahead to see if Operation Twist lives up to the Fed’s expectations.

    Background Perspective on Yields

    The first chart shows the daily performance of several Treasuries and the Fed Funds Rate (FFR) since 2007. The source for the yields is the Daily Treasury Yield Curve Rates from the US Department of the Treasury and the New York Fed’s website for the FFR.

     

     

    Here’s a closer look at the past year with the 30-year fixed mortgage added to the mix (excluding points).

     

     

    Here’s a comparison of the yield curve at two points in time: 1) today’s close and 2) the daily close on the market’s interim high on April 29th. The S&P 500 is down nearly about 12.7% since then.

     

     

    The next chart shows the 2- and 10-year yields with the 2-10 spread highlighted in the background.

     

     

    The final chart is an overlay of the CBOE Interest Rate 10-Year Treasury Note (TNX) and the S&P 500.

     

     

    The final chart shows the percent change for a basket of eight Treasuries since the initiation of the second round of quantitative easing on November 4th, 2010.

     

     

     

     

    For a long-term view of weekly Treasury yields, also focusing on the 10-year, see my Treasury Yields in Perspective.

     

    Images: Flickr (licence attribution) 

    About The Author

    My original dshort.com website was launched in February 2005 using a domain name based on my real name, Doug Short. I’m a formerly retired first wave boomer with a Ph.D. in English from Duke. Now my website has been acquired byAdvisor Perspectives, where I have been appointed the Vice President of Research.

    My first career was a faculty position at North Carolina State University, where I achieved the rank of Full Professor in 1983. During the early ’80s I got hooked on academic uses of microcomputers for research and instruction. In 1983, I co-directed the Sixth International Conference on Computers and the Humanities. An IBM executive who attended the conference made me a job offer I couldn’t refuse.

    Thus began my new career as a Higher Education Consultant for IBM — an ambassador for Information Technology to major universities around the country. After 12 years with Big Blue, I grew tired of the constant travel and left for a series of IT management positions in the Research Triangle area of North Carolina. I concluded my IT career managing the group responsible for email and research databases at GlaxoSmithKline until my retirement in 2006.

    Contrary to what many visitors assume based on my last name, I’m not a bearish short seller. It’s true that some of my content has been a bit pessimistic in recent years. But I believe this is a result of economic realities and not a personal bias. For the record, my efforts to educate others about bear markets date from November 2007, as this Motley Fool article attests.
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