Lesson from Tracking the U.S. 10-Treasury Note Yield
Interest-Rates / US Bonds Mar 16, 2012 - 03:50 AM GMTBy: Asha_Bangalore
The 10-year U.S Treasury note yield is trading at 2.28% as of this writing, little changed from 2.29% yesterday. But, this is a 25 bps uptick in two trading days, given the March 12 closing quote of 2.04%. The reasons listed for the sharp sell-off are – the less dovish policy statement of the Fed, February retail sales numbers, the success of the stress test of the largest 19 banks of the nation, the resolution of the Greek debt crisis, the improvement of employment conditions seen in the February employment report, the optimism from equity price rally, and so forth. The main takeaway is that as the list of positive economic signals grows, long rates move up in a hurry.
The Fed is not in a monetary policy tightening mode at present and U.S. and global economic conditions are different from the 1994-95 period. Nonetheless, the key lesson from the 1994-1995 monetary policy tightening experience is that interest rate move up rapidly as the economy gathers steam. In October 1993, the 10-year Treasury note hit a low of 5.19%, which rose to a high of 8.05% by early November (see Chart 5). The Fed commenced tightening in February 1994 when the 10-year Treasury note was trading at 5.94% and raised the target federal funds rate to 5.50% by November 15, 1994.
Asha Bangalore — Senior Vice President and Economist
http://www.northerntrust.com
Asha Bangalore is Vice President and Economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was Consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.
Copyright © 2012 Asha Bangalore
The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.
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