bonds were trading with a yield of 2.
That means that a thirty-year Treasury
bond had jumped in price by more than 15 percent.
The market itself is a product of short-term forces (even though the market has some long-term indicators, such as the thirty-year Treasury
yield), and is most likely to respond to (or anticipate) recent economic news.
Over the quarter, the two-year Treasury yield declined 92 basis points while the yield on the thirty-year bond was nearly unchanged, bringing the spread between the two- and thirty-year Treasury
yields to 126 basis points.
At the same time, thirty-year Treasury
bonds actually declined in yield by forty-five basis points, implying monetary conditions as measured out the yield curve were actually less restrictive.
Figure 6 plots the yield spread between the thirty-year Treasury
bond and the ten-year Treasury note.
As of mid-January 2000, the Thirty-Year Treasury
yield experienced a 52-week range increase of 163 basis points.
The thirty-year Treasury
bond is no longer the lead contract for the U.
3 percent on the thirty-year Treasury
bond, by reputation the most secure instrument in the world.
Over the same period, the yields on the two-year Treasury note and thirty-year Treasury
bond fell 76 and 24 basis points, respectively, leading the two- to thirty-year coupon curve to return to a positive spread for the first time since January 2000.
The buy-back program had a dramatic impact on the financial sector, significantly reducing liquidity in the market for thirty-year Treasury
062 percent for dollar-pound transactions--roughly the size of the spread on a thirty-year Treasury