Yield, Spreads and Uncertainty/Risk | Ecobrowser

Maturity spreads increase slightly, yield (nominal, real) decreases, and the level of risk increases.

Some nominal rates have dived; real rates also, assuming that the bulk of the movement is a change in estimated future economic activity.

Picture 1: Top panel: 10-3-month T-bill spread (blue), 10-2-year spread (tan), both in %; Middle panel: 5-year Treasury-TIPS spread (purple), 5-year liquidity-adjusted spread and risk premium (red); Bottom panel: VIX (sky blue, left scale), EPU (black, right scale). Source: Treasury via FRED. KVV after D’amico, Kim and Wei (DKW), CBOE via FRED, policyuncertainty.com.

Five-year bond yields are down 46bp today, while two-year yields are down 27bp. Real or nominal effects? Here are the corresponding 5-year nominal and real rates.

Figure 2: Five-year Treasury yield (blue), TIPS (brown), both in %. Source: Treasury via FRED.

Over the past week, the nominal 5-year rate has fallen by 75 bp, while the TIPS yield has fallen by 61 bp. This suggests a real downturn, which, of course, could be driven by the real economy outlook or anticipation of a tough Fed policy (see below). previous entry on the implied trajectory of the federal funds rate).