Yield Curve Continues To Flatten; A Look At The Black Friday Covid-19 Yield Plunge

One Day Change Synopsis

  • The markets were closed on Thanksgiving, November 25. The chart reflects the change between November 24 and November 26. 
  • Yields were down across the board from 1-year through 30-years. 
  • 7-year and 5-year yields declined the most, 18 basis points. 

Omicron Covid-19 Threat

The response was due to global lockdowns in at least 9 countries on a new Covid-19 variant labeled Omicron.

Treasury Yields October 1 vs November 26 

Treasury Yields October 1 vs November 26 2021-11-26

 

Change in treasury Yield Since October 1 

Change in treasury Yield Since October 1 2021-11-26

  • The Yield Curve has been flattening since late September or early October. 
  • I have been using October 1 for my starting point in previous comparisons and stick with that date.
  • Since October 1 30-year and 20-year yields have declined. The 10-year yield is flat and everything else is up.
  • As in previous updates, the 3-year note continues to be the spot most sensitive to expected rate hikes. 
  • The 30-year yield is down 21 basis points and the 3-year yield is up 32 basis points. This represents 53 basis points of relative tightening.  

Inversion Notes 

  • Inversion occurs when longer-term treasuries have a lower yield than shorter-term treasuries.
  • The 30-year treasury (1.83%) and 20-year treasury (1.89%) are inverted by 6 basis points. This has been ongoing for weeks.
  • There is only 8 basis points of difference between the 7-year and 10-year notes. I expect this will be the next spot to invert.
  • Inversion is a recession signal but the inversions are not deep enough yet to signal anything 

The yield curve plunge was expected in this corner, but I had no idea in advance of the new covid-19 variant.

Rather, expected rate hikes just seldom happen and I felt far too many were priced in. 

See Interest Rate Hike Odds Crash On Renewed Covid-19 Concerns for ...

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Kirk Sheffield 5 months ago Member's comment

Really only seeing some wonkiness in the long end of the curve. If anything under the 5 year yields more than the 7,10,20,30 then we have some major recession problems. Getting there slowly :( but not quite disaster yet.