There’s been a bit of chatter lately about 30-year Treasury yields and the fact that they have been inching up towards 5%. As a reminder, the 30-year Treasury yield is the interest the U.S. government promises to pay you each year if you let them borrow your money for 30 years. It’s kind of a big deal because over the past two decades, we haven’t seen many instances where the longest bond on the curve paid that much.
Obviously, it gets people’s attention, because a higher 30-year rate makes borrowing more expensive for things like houses. So, should we be concerned?
Well, this week’s chart compares the 30-year yield to the 10-year yield, to determine how much extra “bonus” an investor gets for lending money for that much longer. It shows that, on average, since the early 90’s, the 30-/10-year spread has been about a half a percentage point (0.52%). Today, it’s just a touch higher at 0.68%. In other words, not that far from normal.
As you can see from the shading on the chart, just before or during recessions, this number tends to fall toward zero. Then, as the economy recovers, the spread usually widens back out again—and sometimes gets as high as a full percentage point.
Our take? 30-year Treasury yield are slightly rich compared to 10-year yields right now, especially considering slowing economic growth, which suggests the long end of the curve will likely remain below 5% in the coming weeks (something we got a taste of on Friday, when the poor jobs report led to a big drop in 30-year rates).
This is intended for informational purposes only and should not be used as the primary basis for an investment decision. Consult an advisor for your personal situation.
Indices mentioned are unmanaged, do not incur fees, and cannot be invested into directly.
Past performance does not guarantee future results.