Unraveling Treasury Yield Curve: 5 Charts Depicting Haywire Shifts In The Debt-Ceiling Crisis

The Treasury yield curve has witnessed substantial volatility in recent weeks as a result of multiple shocks, mostly related to Fed interest rate expectations, the dangers of a recession, and the consequences resulting from the debt-ceiling standoff.

President Joe Biden is scheduled to speak at 1:30 p.m. ET on Wednesday on why Congress must avert default promptly and without conditions. The speech follows the president's meeting with congressional leaders on Tuesday. The White House statement suggested that House Speaker Kevin McCarthy's request to substantially decrease federal expenditures will remain a stumbling block to reaching a bipartisan agreement.

Meanwhile, market-based U.S. default insurance costs – as measured by the credit default swaps – have risen to the highest level since 2009, showing that markets are becoming apprehensive as the June 1 deadline nears.

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The next five charts show how the U.S. yield curve has recently reached previously unheard-of extremes, defying all logic.

1) 1-Month U.S. Treasury Bill Yield Hit Record High As Markets Fear An Imminent Default
The yield on a one-month Treasury bill rose to 5.5%, surging above prior highs set in February 2007. Since the start of the month, one-month yields have risen by a full percentage point. 

2) The 1-Month versus 6-Month Yield Spread Is the Widest Ever
This week saw a historic high in the yield differential between one-month and six-month Treasury bills, which is currently trading at 37 basis points.

3) A 1-month Treasury Bill Yields 2% More Than A 10-year Treasury.

The yield spread between Treasury bills maturing in one month and those maturing in ten years is at an all-time high of about 200 basis points, or 2 percentage points.
In other words, the Treasury yield curve is extremely inverted between the one-month and 10-year tenors.

4) Record-High Yield Spread Between 3-Month And 30-Year Treasuries 

The yield spread between a maturing three-month bill and a thirty-year Treasury bond is nearly 1.5%, the highest level ever recorded.

5) 6-Month Bill Yields Now Outpace Inflation 

The entire very short end of the Treasury yield curve up to 6 months now shows yields above the US inflation rate, a condition that had not occurred since before the outbreak of the Covid-19 pandemic and was rarely seen throughout the post-2009 crisis decade

Popular Exchange Traded Funds (ETFs) To Buy US Treasuries: 

• SPDR Bloomberg 1-3 Month T-Bill ETF BIL
• SPDR Bloomberg 3-12 Month T-Bill ETF BILS
• iShares 1-3 Year Treasury Bond ETF SHY
• iShares 7-10 Year Treasury Bond ETF IEF
• iShares 20+ Year Treasury Bond ETF TLT

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