Is the Yield Curve Righting Itself?

As we are all aware we are currently in an inverted yield curve situation. This means the returns on short term bonds (2 year papers) is more than the returns on long term bonds (30 year papers). A normal situation is exactly the opposite. Long term papers have a higher risk due to the uncertainity of the “longer” future, whereas the short time papers have less risk since the bonds expire within the “short-term”.

Here is an interesting article from today:

Bonds mixed as yield curve rights itselfYield on benchmark 10-year note climbs above two-year for first time since January; dollar falls slightly against euro, yen.

NEW YORK (CNNMoney.com) - Bond prices split Wednesday as the yield on the 10-year surpassed that of two-year for the first time since January.

The benchmark 10-year Treasury note slipped 2/32 to 98-04/32, pushing its yield to 4.74 percent, up from 4.73 percent late Tuesday.

The 30-year bond fell 7/32 to 96-12/32, yielding 4.73 percent, up from 4.71 percent the previous session. Bond prices and yields move in opposite directions.

The five-year note was relatively unchanged, yielding 4.75 percent, and the two-year note was up two ticks, yielding 4.73 percent.

Bond yields, which normally increase from shorter- to longer-term debt, have been closely watched by investors since they inverted in December for the first time in five years.

The nation’s last two recessions were each preceded by inversions of the curve, which has also signaled economic slowdowns but not outright recessions in the past.

Economists said the latest inversion may signal a slowdown in economic growth later this year, but probably not a recession.

Read full article: http://money.cnn.com/2006/03/08/markets/bondcenter/bonds/index.htm

Welcome to the Arizona Mortgage Guru blog, a great resource for all your home financing needs. If you're new here and like the content, you can subscribe to my RSS feed to get regular updates on all things related to mortgages. Thanks for visiting.

Related posts brought to you by Yet Another Related Posts Plugin.