The Behavior of U.S. Treasury Yields Post Bernanke’s QE2

The behavior of Treasuries (NYSE:TLT) is an area of special interest in light of the Fed’s second round of quantitative easing, which was formally announced on November 3rd. The first chart shows the percent change for a basket of eight Treasuries since November 4th. Yields had risen dramatically since then. However, we’ve saw an accelerating reversal from mid-February until March 16th. But St. Patrick’s Day was the beginning of a renewed rise in yields.

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The next chart shows the daily performance of several Treasuries and the Fed Funds Rate  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.

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

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Here’s a comparison of the yield curve at the time of the Fed’s QE2 announcement and the latest curve.

The yield spread had been widening in November and much of December, then contracted, and now show renewed signs of widening. The next chart shows the 2- and 10-year yields with the 2-10 spread highlighted in the background.

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The final chart is an overlay of the CBOE Interest Rate 10-Year Treasury Note and the S&P 500 (NYSE:SPY).
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Doug Short Ph.d is the author of dshort.com.

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