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Plummeting Treasury Rates

Equities were strongly lower across the board today, the VIX and general volatility measures remained muted, but the big story of the day that you will not hear about is that treasuries rallied like a banshee.  This rally was especially pronounced on the long end of the US yield curve where the 30 year interest rate plummeted by 17.1 bps.  To put this in perspective, this is the 17th largest absolute drop in the 30 year treasury rate since January 1990.  Of those 17 drops, 6 occurred in 4th quarter 2008 after the bankruptcy of Lehman, a few were in the first quarter of 2009, others can be traced to 9/11, the start of the first gulf war or just higher interest rate levels:

If we change our analysis to percentage change rather than absolute change, today was the 15th largest drop.

What I found even more interesting is that the gap between 30 year treasury rates and 30 year breakeven inflation rates dropped to its lowest level in 13 years to just 1.25%:

Smallest difference between breakeven and nominal

Is this really predicting a multi-decade Japanese growth scenario?

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Continuing the Discussion

  1. Wednesday links: ratings regulations | Abnormal Returns linked to this post on August 3, 2011

    […] The 30-year breakeven inflation rate is at a thirteen year low.  (SurlyTrader) […]

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