Wednesday, June 20, 2018
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US Treasury Market
Date	1 mo	3 mo	6 mo	1 yr	2 yr	3 yr	5 yr	7 yr	10 yr	20 yr	30 yr
6/13/18	1.82	1.94	2.09	2.35	2.59	2.71	2.85	2.95	2.98	3.04	3.10
6/14/18	1.81	1.94	2.07	2.35	2.59	2.69	2.81	2.90	2.94	2.99	3.05
6/15/18	1.82	1.94	2.07	2.35	2.55	2.68	2.81	2.89	2.93	2.98	3.05
6/18/18	1.84	1.94	2.13	2.35	2.56	2.67	2.80	2.89	2.92	2.98	3.05
6/19/18	1.85	1.94	2.13	2.34	2.54	2.64	2.77	2.84	2.89	2.95	3.02

                                                                                      Source: U.S. Department of the Treasury, as of 06/19/2018 

 
Inversion 3bps Away
 
Typically, curve focus is on the 2 year to 10 year part of the curve for banks as portfolio durations typically fall somewhere within and the bulk of bond investments are within those tenors.  Though interest rates are rising, the curve flattening has been well telegraphed due to the Fed’s gradual tightening path while geopolitical drama and a fear of a recession just around the corner looms on the longer end of the curve.  
 
Taking a look at U.S. Treasuries year-to-date (Graph 1), rates have risen across the curve by as much as 68bps in the front end while the long end lagged causing the curve to flatten.  U.S. Treasury 2 year to 10 year is making fresh new lows dropping below 35bps (Graph 2) for the first time since the Great Recession.  Though it is still ~35bps away from flat, there are parts of the curve that is much closer to inversion. U.S. Treasury 7 year to 10 year part of the curve is now only about 3bps away from inversion which some finance professionals say could happen as soon as next week when we get 7 year supply. 
 
Graph 1: Yield Curve Comparison – Today vs. End of Year 2017

Source: Bloomberg 6/20/18.
 
Graph 2: Historical Yield Curves – UST 7s10s, UST 2s10s, UST 5s30s

Source: Bloomberg 6/20/18.
 
Strategy: Term premium is expected for investing further out the curve, so 3bps lacks any appeal.  However, not all bonds exhibit the same flatness in their curves or lack of value. Municipal bonds for example show some of their best values in the longer end of the curve where pre-tax yields to treasuries ratio start hitting 100% at about the 10yr area.  
 
                             

This information is intended for institutional investors only. The material provided in this document/presentation is for informational purposes only and is intended solely for private use. Past performance is not indicative of future results. This material is not intended as an offer or solicitation for the purchase or sale of any financial instruments.

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