Saturday, June 6, 2009

Long-term treasuries

Long-term Treasury bonds have been falling in value as their interest rates have risen, from less than 3% at the beginning of the year to more than 4.5% on Friday. Much of that rise has occurred in the last two months, and has resulted in large losses in some bond funds:
What's stunning about the portfolio declines is the swift plunge in Treasury prices within a short period of time despite the Federal Reserve's buyback purchases intended to hold down interest rates. Benchmark 10-year Treasury yields have surged to levels not seen in more than six months, resulting in meaningful losses for many portfolios.

The 10-year T-note and 30-year Treasury bond are down 8.58 percent and 24 percent, respectively, in terms of price for the year to date.
As a result, the yield curve is very steep. People are still getting almost nothing at the short end, but are demanding much larger returns at the high end. The most interesting question in all of this is, are people expecting an outbreak of inflation as a result of a U.S. government budget that is out of control?

Source of most data is here.

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