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

By U Cast Studios
November 29, 2021

Yield Curve Continues To Flatten A Look At The Black Friday Covid 19 Yield Plunge
Image Courtesy Of Mish Talk
Here are some charts that show the US treasury yield plunge on the new Omicron Covid-19 threat.

One Day Change in Treasury Yield 2021-11-26

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

Change Notes

  • 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.

This article was originally published by Mish Talk.

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