INTEREST RATES

Current Yield Curve and Recent Shifts:  The short-end of the yield curve has moved up as the Fed commenced its interest rate normalization program.  The long-end of the yield curve has fallen such that the full yield curve is now relatively flat.   Yield curve has flattened with inverted mid-range.

Current Yield Curve and Recent Shifts: The short-end of the yield curve has moved up as the Fed commenced its interest rate normalization program.

The long-end of the yield curve has fallen such that the full yield curve is now relatively flat.

Yield curve has flattened with inverted mid-range.

Trends in U.S. Treasury Yield Curve Spreads:  Here we can see the movements in the slope of the Treasury yield curve.  The spread of both the 10-year to 2-year and 10-year to 3-month have tightened to recent historic lows. The 10-year to 2-year spread has narrowed to only 19 bps. And the 10-year to 3-month spread has narrowed to only 0 bps.  Sign of weakening economy like in past cycles? Only time will tell.

Trends in U.S. Treasury Yield Curve Spreads: Here we can see the movements in the slope of the Treasury yield curve.

The spread of both the 10-year to 2-year and 10-year to 3-month have tightened to recent historic lows. The 10-year to 2-year spread has narrowed to only 19 bps. And the 10-year to 3-month spread has narrowed to only 0 bps.

Sign of weakening economy like in past cycles? Only time will tell.

 
Yield Curve Maturity Walk:  The mid-section of the yield curve has inverted - 1-year, 2-year and 3-year.

Yield Curve Maturity Walk: The mid-section of the yield curve has inverted - 1-year, 2-year and 3-year.

Yield Curve YoY Change by Maturity:  Short end of the yield curve continues to rise faster than the longer end.  And note that the mid- to long end has actually fallen from one year ago.

Yield Curve YoY Change by Maturity: Short end of the yield curve continues to rise faster than the longer end. And note that the mid- to long end has actually fallen from one year ago.

 
Yield Curve Shifts Latest Three Years:  Here we show a three year progression of the yield curve which shows the rising, flattening and inverting trends.   YoY, 3-month Treasuries are up ~50 bps; while 2-year Treasuries are down ~40 bps and 10-year Treasuries are down ~70 bps.  From two years ago,, 3-month Treasuries are up ~150 bps; while 2-year Treasuries are up ~90 bps and 10-year Treasuries are up ~20 bps.  For Community Banks, how have interest rate spreads held up?

Yield Curve Shifts Latest Three Years: Here we show a three year progression of the yield curve which shows the rising, flattening and inverting trends.

YoY, 3-month Treasuries are up ~50 bps; while 2-year Treasuries are down ~40 bps and 10-year Treasuries are down ~70 bps.

From two years ago,, 3-month Treasuries are up ~150 bps; while 2-year Treasuries are up ~90 bps and 10-year Treasuries are up ~20 bps.

For Community Banks, how have interest rate spreads held up?

Historical Yield Curve Highs and Lows:  Lastly, here we show a historical view of the yield curve to reflect on the dramatic differences that have occurred over the decades since the 1980's.  Interest rates peaked during 1981 with interest rates across the yield curve in the 14 to 16% range and inverted (short-end higher than long-end).  This is on the other end of the spectrum from the recent lows where the yield curve in 2008 contained interest rates from 0 to 2%.  Or even today's yield curve with interest rates ranging from approximately 2.4 - 2.5%.

Historical Yield Curve Highs and Lows: Lastly, here we show a historical view of the yield curve to reflect on the dramatic differences that have occurred over the decades since the 1980's.

Interest rates peaked during 1981 with interest rates across the yield curve in the 14 to 16% range and inverted (short-end higher than long-end).

This is on the other end of the spectrum from the recent lows where the yield curve in 2008 contained interest rates from 0 to 2%.

Or even today's yield curve with interest rates ranging from approximately 2.4 - 2.5%.


Interest Rate and Yield Curve Spread Trends:

10-yr US Treasury vs. 2-yr US Treasury

10-yr US Treasury vs. 3-mo US Treasury

 
10-year U.S. Treasury compared to 2-year U.S. Treasury

10-year U.S. Treasury compared to 2-year U.S. Treasury

10-year U.S. Treasury compared to 3-month U.S. Treasury

10-year U.S. Treasury compared to 3-month U.S. Treasury


Federal Reserve FOMC Interest Rate Activity: 2019

The Fed has indicated continuation along its interest rate normalization program commenced in December 2015. The Fed raised interest rates once in 2015 totaling 25 bps, once in 2016 totaling 25 bps and three times in 2017 totaling 75 bps.

In 2018, the Fed raised interest rates on three occassions in March, June and September by 25 bps each.

And the Fed did raise interest rates one more time at the December FOMC meeting for a total of 100 bps increase during 2018.

With this hike, the effective federal funds rate will be approximately 2.40 - 2.50% - reaching levels last seen in the Spring of 2008.

At the FOMC meeting held March 19-20, 2019, the Fed made no change to the fed funds rate. And the FOMC projections suggest that there may be no further increases in 2019. It will all depend upon the economic data. The next FOMC meeting where an interest rate decision is typically made will be June 18-19.