All rates fell in May. The yield curve shrank from the previous month thus ending its one month widening streak. The one-month bill did not maintain the lowest rate at any point in the month. Long-term rates fell at a faster pace than short-term rates thus 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. A side note: several financial analysts have recently pointed to inversions between particular rates like the three-year note having a higher rate than the five-year note as being indicators for a recession. The data does not back this up. The only type of inversion that has led to a recession reliably is one in which the highest rate is a shorter-term treasury than the lowest rate. This is the only inversion that has predicted a recession seven out of eight times since 1962. According to this measure, there is no recession in the foreseeable future.
Findings
- All rates dropped in May.
- The one-month and three-month bills saw the smallest absolute drop at 0.08 points.
- On a relative basis, the one-month and three-month bills fell the least with a 3.29 percent drop.
- The ten-year note saw the largest absolute drop at 0.37 points.
- On a relative basis, the five-year note dropped the most with a 15.35 percent drop.
- The one-month bill did not maintain the lowest rate throughout the month or at any point in the month.
- The yield curve fell 0.01 points to 0.65.
Caveats
- As always, past performance is not indicative of future results.
- All figures are rounded to the nearest hundredth.
Details
The breadth of the yield curve narrowed 0.01 points over the month to a range of 0.65. The widest range was 0.67 (0.01 points higher than the previous month's widest range of 0.66) which was hit on May 15 and the narrowest was 0.60 (0.02 points higher than the previous month's narrowest range of 0.58) which was hit on May 2 and May 3. The last time the yield curve was this narrow was on April 18, 2019 when it hit a range of 0.58.
The thirty-year bond held the highest rate throughout the month. It has fallen below 2.90 percent on May 6 and has not gone above it since. It should be noted that all other rates remained below the 2.80 percent threshold throughout the month. The last time the 30-year rate hit this month's low of 2.58 was on November 4, 2016 when it was at 2.56.
The one-month bill did not hold the lowest rate for any session of the month. The three-year note held the lowest rate throughout the month except for one session on May 28 when it shared the lowest rate with the five-year note. The one-month did not hit a new 12-month high extending its streak of no new 12-month highs to two months. The last time the three-year note held the lowest rate was on April 30, 2019.
Sources
"Treasury Constant Maturity," Federal Reserve Bank of St. Louis, accessed June 4, 2019, https://fred.stlouisfed.org/categories/115.