As of October 16, 2023, the yield for a ten-year U.S. government bond was 4.71 percent, while the yield for a two-year bond was 5.09 percent. This represents an inverted yield curve, whereby bonds of longer maturities provide a lower yield, reflecting investors' expectations for a decline in long-term interest rates. Hence, making long-term debt holders open to more risk under the uncertainty around the condition of financial markets in the future. That markets are uncertain can be seen by considering both the short-term fluctuations, and the long-term downward trend, of the yields of U.S. government bonds from 2006 to 2021, before the treasury yield curve increased again signififcantly in 2022.
What are government bonds?
Government bonds, otherwise called ‘sovereign’ or ‘treasury’ bonds, are financial instruments used by governments to raise money for government spending. Investors give the government a certain amount of money (the ‘face value’), to be repaid at a specified time in the future (the ‘maturity date’). In addition, the government makes regular periodic interest payments (called ‘coupon payments’). Once initially issued, government bonds are tradable on financial markets, meaning their value can fluctuate over time (even though the underlying face value and coupon payments remain the same). Investors are attracted to government bonds as, provided the country in question has a stable economy and political system, they are a very safe investment. Accordingly, in periods of economic turmoil, investors may be willing to accept a negative overall return in order to have a safe haven for their money. For example, once the market value is compared to the total received from remaining interest payments and the face value, investors have been willing to accept a negative return on two-year German government bonds between 2014 and 2021. Conversely, if the underlying economy and political structures are weak, investors demand a higher return to compensate for the higher risk they take on. Consequently, the return on bonds in emerging markets like Brazil are consistently higher than that of the United States (and other developed economies).
Inverted yield curves
When investors are extremely worried about the financial future, it can lead to what is called an ‘inverted yield curve’. An inverted yield curve is where investors pay more for short term bonds than long term, indicating they do not have confidence in long-term financial conditions. Historically, the yield curve has historically inverted before each of the last five U.S. recessions. The last U.S. yield curve inversion occurred at several brief points in 2019 – a trend which continued until the Federal Reserve cut interest rates several times over that year. However, the ultimate trigger for the next recession was the unpredicted, exogenous shock of the global coronavirus (COVID-19) pandemic, showing how such informal indicators may be grounded just as much in coincidence as causation.
Treasury yield curve in the United States as of October 2023
End of month data.
The source adds the following information: "Yields are interpolated by the Treasury from the daily yield curve. This curve, which relates the yield on a security to its time to maturity is based on the closing market bid yields on actively traded Treasury securities in the over-the-counter market. These market yields are calculated from composites of indicative, bid-side market quotations (not actual transactions) obtained by the Federal Reserve Bank of New York at or near 3:30 PM each trading day. The CMT yield values are read from the yield curve at fixed maturities, currently 1, 2, 3 and 6 months and 1, 2, 3, 5, 7, 10, 20, and 30 years."
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US Department of the Treasury. (October 17, 2023). Treasury yield curve in the United States as of October 2023 [Graph]. In Statista. Retrieved December 03, 2023, from https://www.statista.com/statistics/1058454/yield-curve-usa/
US Department of the Treasury. "Treasury yield curve in the United States as of October 2023." Chart. October 17, 2023. Statista. Accessed December 03, 2023. https://www.statista.com/statistics/1058454/yield-curve-usa/
US Department of the Treasury. (2023). Treasury yield curve in the United States as of October 2023. Statista. Statista Inc.. Accessed: December 03, 2023. https://www.statista.com/statistics/1058454/yield-curve-usa/
US Department of the Treasury. "Treasury Yield Curve in The United States as of October 2023." Statista, Statista Inc., 17 Oct 2023, https://www.statista.com/statistics/1058454/yield-curve-usa/
US Department of the Treasury, Treasury yield curve in the United States as of October 2023 Statista, https://www.statista.com/statistics/1058454/yield-curve-usa/ (last visited December 03, 2023)
Treasury yield curve in the United States as of October 2023 [Graph], US Department of the Treasury, October 17, 2023. [Online]. Available: https://www.statista.com/statistics/1058454/yield-curve-usa/