Yields on 5- and 10-year Treasuries hit new record lows

09/02/2011 5:47 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

As if banks didn’t have enough problems. The yield curve—the difference between the yield on short-term and long-term bonds—continues to flatten. That’s not good news since banks make their money on the difference between what they pay to raise short-term funds and what they collect on longer-term loans.

Friday saw new record lows in the yield on 5-year and 10-year Treasuries. The yield on a five-year Treasury fell to just 0.87% at the close. The yield on a 10-year Treasury finished the day at 1.996% (Yep, that’s less than 2% for locking up your money for 10-years. Tells you something about the fear level in the market. Of course, most buyers aren’t expecting to hold these bonds for 10-years. Wonder, though, who they’re planning on selling them all to?)

That decline brings the spread between two-year and 10-year Treasuries to just 1.8 percentage points. That’s not a lot of room for bank profits.

The market certainly looks like it’ anticipating what Wall Street is calling “Operation Twist” in which the Federal Reserve rolls over maturing short-term Treasuries in its portfolio into buying of longer-term Treasuries in an effort to force down the longer end of the yield curve.

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