by Bill McBride on 5/27/2009 07:01:00 PM
Wednesday, May 27, 2009
Earlier we discussed the rising ten year yield (treasury sell-off) and the impact on mortgage rates ... and here is some more interest rate news: the yield curve (ten year yield minus two year yield) is at record levels.
From Bloomberg: Yield Curve Steepens to Record as Debt Sales Surge
The difference in yields between Treasury two- and 10-year notes widened to a record on concern surging sales of U.S. debt will overwhelm the Federal Reserve’s efforts to keep borrowing costs low.Click on graph for larger image in new window.
The so-called yield curve steepened to 2.75 percentage points, surpassing the previous record of 2.74 percentage points set on Aug. 13, 2003.
This graph shows the difference between the ten- and two-year yields.
Usually a steep yield curve precedes a period of decent growth, but several analysts suggest the current ten year sell-off is due to concerns about increased Treasury issuance to finance the deficit. Whatever the reason, this is a challenge for the Fed to keep mortgage rates low.
NOTE: For amusement, check out this New Yorker cartoon by David Sipress: "Wasn't that Paul Krugman?"