Yield Curves 3Q 2010

The slope of the US Treasury curve is at or near record steep levels across most of the combinations.
What determines where the curve slope will be going forward?

This analysis attempts to answer that question by looking at yield per unit of duration risk.
Macauley-durations have been calculated for 2-year, 5-year, 10-year, and 30-year treasuries.

Yield Per Duration Unit (basis points) = Closing Yield (basis points) / Macauley-duration

The differentials are then calculated among the different points of the curve.

The data set consists of daily observations from August 14, 1998 through August 5, 2010.

Based on this analysis alone, the steep curve is a bit long-in-the-tooth.

1
Yield Curves: 2-Year Note v 5-Year Note 3Q 2010
200.0 250.00

Y
i
200.00 e
150.0 l
d
/
D
1 u
150.00
0 r
s
/ 100.0
U
3 n
0 i
s 100.00 t

C D
u i
50.0
r f
v f
e 50.00
e
r
e
n
0.0 t
0.00 i
a
l

(50.0) (50.00)
8/14/1998 8/14/1999 8/14/2000 8/14/2001 8/14/2002 8/14/2003 8/14/2004 8/14/2005 8/14/2006 8/14/2007 8/14/2008 8/14/2009

2s/5s 2Y-5Y Yield/Dur Unit Differential

Last observations: Curve 103.4 Differential: -5.68

2
Yield Curves: 2-Year Note v 10-Year Note 3Q 2010
350.0 300.00

300.0 Y
250.00 i
e
l
250.0 d
/
200.00 D
1 u
200.0
0 r
s
/ U
3 150.00
150.0 n
0 i
s t

C 100.0 D
100.00
u i
r f
v f
e 50.0
e
50.00 r
e
n
0.0
t
i
0.00 a
(50.0) l

(100.0) (50.00)
8/14/1998 8/14/1999 8/14/2000 8/14/2001 8/14/2002 8/14/2003 8/14/2004 8/14/2005 8/14/2006 8/14/2007 8/14/2008 8/14/2009

2s/10s 2Y-10Y Yield/Dur Unit Differential

Last observations: Curve 236.7 Differential: -7.75

3
Yield Curves: 2-Year Note v 30-Year Bond 3Q 2010
500.0 350.00

Y
400.0 300.00 i
e
l
d
/
300.0 250.00 D
1 u
0 r
s
/ U
3 200.0 200.00
n
0 i
s t

C 100.0 150.00 D
u i
r f
v f
e e
0.0 100.00 r
e
n
t
i
(100.0) 50.00 a
l

(200.0) 0.00
8/14/1998 8/14/1999 8/14/2000 8/14/2001 8/14/2002 8/14/2003 8/14/2004 8/14/2005 8/14/2006 8/14/2007 8/14/2008 8/14/2009

2s/30s 2Y-30Y Yield/Dur Unit Differential

Last observations: Curve 351.4 Differential: 3.37

4
Yield Curves: 5-Year Note v 10-Year Note 3Q 2010
160.0 90.00

140.0 80.00
Y
i
120.0 e
70.00 l
d
/
100.0
60.00 D
1 u
0 r
80.0
s
/ 50.00
U
3 n
60.0
0 i
s 40.00 t

40.0
C D
u i
30.00
r f
v 20.0
f
e e
20.00 r
0.0 e
n
10.00 t
(20.0) i
a
l
(40.0) 0.00

(60.0) (10.00)
8/14/1998 8/14/1999 8/14/2000 8/14/2001 8/14/2002 8/14/2003 8/14/2004 8/14/2005 8/14/2006 8/14/2007 8/14/2008 8/14/2009

5s/10s 5Y-10Y Yield/Dur Unit Differential

Last observations: Curve 133.3 Differential: -2.07

5
Yield Curves: 5-Year Note v 30-Year Bond 3Q 2010
300.0 140.00

250.0 Y
120.00 i
e
l
d
200.0
/
100.00 D
1 u
0 r
s 150.0
/ U
3 80.00
n
0 i
s 100.0 t

C 60.00 D
u i
r 50.0 f
v f
e e
40.00 r
e
0.0
n
t
i
20.00 a
(50.0) l

(100.0) 0.00
8/14/1998 8/14/1999 8/14/2000 8/14/2001 8/14/2002 8/14/2003 8/14/2004 8/14/2005 8/14/2006 8/14/2007 8/14/2008 8/14/2009

5s/30s 5Y-30Y Yield/Dur Unit Differential

Last observations: Curve 248.0 Differential: 9.05

6
Yield Curves: 10-Year Note v 30-Year Bond 3Q 2010
140.0 50.00

120.0 45.00
Y
i
e
100.0 40.00 l
d
/
80.0 35.00 D
1 u
0 r
s
/ 60.0 30.00
U
3 n
0 i
s 40.0 25.00 t

C D
u i
20.0 20.00
r f
v f
e e
0.0 15.00 r
e
n
(20.0) 10.00 t
i
a
l
(40.0) 5.00

(60.0) 0.00
8/14/1998 8/14/1999 8/14/2000 8/14/2001 8/14/2002 8/14/2003 8/14/2004 8/14/2005 8/14/2006 8/14/2007 8/14/2008 8/14/2009

10s/30s 10Y-30Y Yield/Dur Unit Differential

Last observations: Curve 114.7 Differential: 11.12