Short-term rates rose in May while medium and long-term rates dropped. The yield curve narrowed from the previous month and broke its one-month widening streak. The one-month bill maintained the lowest rate throughout the month. As the one-month rate had the largest increase in both absolute and relative terms, the yield curve narrowed from the bottom increasing the risk of an inversion brought upon by rising short-term rates. Such an inversion, if it were to happen would be a strong indicator for an upcoming recession.
Findings
- The one, three, and six month rates rose in May. All other rates fell.
- The one-month rate saw the largest absolute growth at 0.11 points.
- The seven-year rate saw the largest drop at 0.13 points.
- On a relative basis, the one-month rate grew the most with a 6.67 percent rise.
- The seven-year rate dropped the most on relative terms with a 4.47 percent drop.
- The one-month bill maintained the lowest rate throughout the month.
- The yield curve narrowed 0.22 points.
Caveats
- As always, past performance is not indicative of future results.
- The rates have been at historic lows for quite some time which has not occurred previously.
Details
The breadth of the yield curve narrowed over the month from a range of 1.46 to a range of 1.24. The widest range was 1.55 which was hit on May 17 and the narrowest 1.19 which was hit on May 29.
The thirty-year bond held the highest rate throughout the month. It peaked in the middle of the month only to drop precipitously in the final trading days of May. It has dropped below 3 percent on May 29 but has since managed to stay at or just above 3 percent in the final trading days of the month. It should be noted that the seven-year rate has also risen above 3 percent which has not happened since March 3, 2011, but has since dropped below 3 percent.
The one-month note held the lowest rate for every session of the month. However, it has hit a new 12-month high after taking a break from new highs last month.
Sources
"Treasury Constant Maturity," Federal Reserve Bank of St. Louis, accessed June 4, 2018, https://fred.stlouisfed.org/categories/115.