Treasury Returns May Be About To Hit A Wall On Two Fronts
Supporting Image for Blog Post


View from the Observation Deck

  1. The yield on the benchmark 10-Year T-Note is trading at around 1.65% as of 6/12/12. It closed at an all-time low of 1.45% on 6/1/12.
  2. While extremely low interest rate levels have helped to stabilize the housing market, they have not been kind to savers, particularly retirees.
  3. Even if the Federal Reserve were to launch a third quantitative easing it is debatable how much further rates can fall.
  4. Remember, the Fed's QE2 ("Operation Twist") initiative of swapping out of shorter maturities in favor of longer maturities was ineffective for the first seven months.
  5. The yield on the 10-Year T-Note was 1.94% on 9/20/11 (day before Operation Twist). The yield rose to 2.36% on 3/20/12 only to fall back to 1.96% on 4/20/12. Essentially no change from 9/20/11.
  6. It was not until the escalation of the sovereign debt crisis in the European Union in May that intermediate Treasury rates fell to an historic low. It induced a flight to quality.
  7. In our opinion, those investors using intermediate or long-term Treasuries as a safe haven should not expect returns moving forward to be as rewarding as those in the chart.
Posted on Tuesday, June 12, 2012 @ 2:42 PM

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.