"The Current Term Structure of Interest Rates"

From LearnBonds:

Over the past year, a lot of attention has been paid to the decline in longer-term bonds.  Today, I would like to look at what has happened to the term structure of interest rates during this period of decline.

Looking at just the yield on the 10-year United States Treasury note we see that in the middle of December in 2013, the yield was about 2.85 percent.

Note that I am using the actual yields on the notes, which are calculated on a stream of cash flows, and not the yield from “stripped” securities that are “bullet” investments that pay no interest payments but sell at a discount to the cash that will be paid the investor at the time the issue matures.  The yields on the “strip” securities provide a more “correct” estimate of the yield curve, but the current difference between the two measurements are so minor that I have just gone ahead and reported the yields from the regular securities.

Six months ago, in the middle of June 2014, the yield had dropped to 2.60 percent and only three months ago, this maturity was trading to yield about 2.55 percent.  A month ago, the yield was 2.35 percent, whereas one week ago it was at 2.15 percent.

This week, the yield on the 10-year US Treasury note was at 2.15 percent.  The yield on the 10-year note, therefore, dropped 70 basis points over the past year; 45 basis points over the past six months; 40 basis points over the past three months; and 20 basis points over the past month.

The yield on the 2-year note actually rose during this time from 0.32 percent one year ago and from 0.45 six months ago. Three months ago, the yield on the 2-year note was 0.59 percent, close to where it closed on Tuesday at 0.56 percent.

Consequently, there has been a substantial decline in the term structure of interest rates....MORE