The Yield Curve moves to record spread

The spread between the 2-year and 10-year Treasury Note increased by 10 basis points today and has moved to a record high of 281 basis points. Historically, when this spread widens, the economy is expected to improve quickly in the future. Steep yield curves are normally seen at the beginning of an economic expansion after a recession. The weak economy and the Fed have depressed short-term interest rates; but intermediate rates begin to rise once the demand for capital is re-established by growing economic activity.

Unlike many sentiment indicators, the yield curve indicator has real money behind it and tends to be pretty accurate. If this indicator is correct, we will not have a double dip recession. Intermediate Bond funds have produced excellent performance but may be nearing a top. I have been cutting back on my fixed rate bond fund holdings and adding to my holdings of floating rate bond funds which benefit from rising intermediate bond rates.

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2 responses to “The Yield Curve moves to record spread

  1. I own AGNC,NLY and HTS. Two of these are going up and one,HTS, is not. I was hoping to sell it today before exdiv but it is not getting the rise I expected. If it has to do with the spread, I am having a problem figuring that out. I was trying to chart it and I found the ten year ticker,$TNX, but I couldn’t find the two year. Thanks again for your help on BEO.

    • William: You can get a graph of the 2-year T-Note Yield at http://www.barchart.com
      Use the ticker V4Y0

      The 10-year T-Note Yield is ticker V2Y0

      For spread graphs, click on “Custom charts” , then use the “compare to” boxes to enter the tickers you want.

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