Yield curve inversion deepens as 10-year Treasury hits all-time low
February 27, 2020
The yield on the 10-year U.S. Treasury reached an all-time low at close on Feb. 25 and has shown no signs of bouncing back as fears of the novel coronavirus have investors in risk-off mode.
The 10-year Treasury ended Feb. 25 at 1.33% and closed Feb. 26 at the exact same mark. By Feb. 27, global markets had pushed the yield on the key benchmark even lower overnight, down to 1.28% at around 8 a.m. ET, according to MarketWatch. The previous all-time low for the indicator, which dates back to 1962, was 1.37% in 2016.
U.S. banks and industry observers pay close attention to the 10-year Treasury yield and the yield curve — a line that shows the yield on short-term and longer-term Treasury bonds — as indicators of banks’ ability to generate spread income. The 10-year Treasury yield is widely viewed as a determinant of how banks price products such as the 30-year mortgage.
An inverted yield curve, which occurs when short-term bonds have higher yields than longer-term bonds, has been correlated with recessions, and the recent inversion of the 10-year and 3-month yields has attracted significant broader market attention. As of Feb. 26, the 3-month Treasury yield was 20 basis points higher than the 10-year yield.
Since banks classically generate spread income by borrowing short and lending long, an inverted yield curve significantly hampers their ability to make money.
Source: S&P Global Market Intelligence
