MBA Chart of the Week: A Flattening U.S. Yield Curve

In this week’s chart, we take a snap shot of the yield curve during the first full week of 2014, the first week of September 2015 (reflecting the market’s view prior to the fall FOMC meetings) and the first full week of 2016.   

The yield curves depict Treasury yields of different maturities at each date.  

While short term Treasury yields have increased over the past two years in expectation (and ultimately realization) of the first fed funds rate increase, longer term yields fell as global turmoil and uncertainty led to a flight to safety, driving prices up and yields down in longer maturities.   

Increasing short term rates should lead to higher long run rates under the theory that long term rates are equivalent to compounded short term rates, all else equal (that is, a 10-year bond yield should equal the yield from buying a five-year bond now and again in five years). The flattening yield curve implies that the increased demand for longer term Treasuries has on net pushed yields downward, however, moderating the Fed’s impact on longer term rates.  

Since announcement of the first rate hike, and despite recent market volatility, the Fed has been able to keep the fed funds rates within the target range, but for one trading day at year-end.  

To view the Chart of the Week, click https://www.mba.org/news-research-and-resources/forecasts-data-and-reports/forecasts-and-commentary/chart-of-the-week.  

(Michael Fratantoni is vice president of research and economics with the Mortgage Bankers Association. He can be reached at mfratantoni@mortgagebankers.org. Lynn Fisher is vice president of research and economics with MBA; she can be reached at lfisher@mba.org. Joel Kan associate vice president of economic forecasting with MBA; he can be reached at jkan@mortgagebankers.org).