Why 20 year US treasury is yielding more than 30?

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SteadyOne
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Why 20 year US treasury is yielding more than 30?

Post by SteadyOne »

What is the reason 20 year UST has higher yield than 30 year? Not by much (2.59% vs 2.51%), but still. … Ten year is 2.14%.
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Re: Why 20 year US treasury is yielding more than 30?

Post by muffins14 »

There must be more demand for the 30, such that people pay more for it, thus driving the yield down relative to the 30
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Re: Why 20 year US treasury is yielding more than 30?

Post by Thesaints »

People expect that 20 years from now yields will be lower than they are now.
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Re: Why 20 year US treasury is yielding more than 30?

Post by secondopinion »

SteadyOne wrote: Tue Mar 15, 2022 12:43 pm What is the reason 20 year UST has higher yield than 30 year? Not by much (2.59% vs 2.51%), but still. … Ten year is 2.14%.
It is a form of some yield curve inversion. I guess the market is seeing the 30-year as safer than the 20-year for the long-term. The bigger question is why not more inversion across the curve?
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Re: Why 20 year US treasury is yielding more than 30?

Post by SimpleGift »

SteadyOne wrote: Tue Mar 15, 2022 12:43 pm What is the reason 20 year UST has higher yield than 30 year? Not by much (2.59% vs 2.51%), but still. ….
My sense is that the 30-year bond has a much greater supply than the 20-year bond (only re-introduced in 2020, for the first time since 1986), and thus investors prefer it and it trades more frequently — often resulting in a slightly higher yield for the 20-year.

So this difference in yields is likely more just a market technicality than anything fundamental.
Last edited by SimpleGift on Tue Mar 15, 2022 1:45 pm, edited 1 time in total.
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Re: Why 20 year US treasury is yielding more than 30?

Post by JoeRetire »

SteadyOne wrote: Tue Mar 15, 2022 12:43 pm What is the reason 20 year UST has higher yield than 30 year? Not by much (2.59% vs 2.51%), but still. … Ten year is 2.14%.
Inversion!
I believe that means the sky is falling, or will fall, or did fall, or something...
Oh, noooooo! I'm so sorry, it's the moops! The correct answer is 'the moops'.
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Re: Why 20 year US treasury is yielding more than 30?

Post by secondopinion »

JoeRetire wrote: Tue Mar 15, 2022 1:24 pm
SteadyOne wrote: Tue Mar 15, 2022 12:43 pm What is the reason 20 year UST has higher yield than 30 year? Not by much (2.59% vs 2.51%), but still. … Ten year is 2.14%.
Inversion!
I believe that means the sky is falling, or will fall, or did fall, or something...
Or that 20 year bonds are selling for a higher yield than 30 year bonds... We have to take the fact for what it is.
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Re: Why 20 year US treasury is yielding more than 30?

Post by JoeRetire »

secondopinion wrote: Tue Mar 15, 2022 1:42 pm
JoeRetire wrote: Tue Mar 15, 2022 1:24 pm
SteadyOne wrote: Tue Mar 15, 2022 12:43 pm What is the reason 20 year UST has higher yield than 30 year? Not by much (2.59% vs 2.51%), but still. … Ten year is 2.14%.
Inversion!
I believe that means the sky is falling, or will fall, or did fall, or something...
Or that 20 year bonds are selling for a higher yield than 30 year bonds... We have to take it for what it is.
That too? OMG! :shock:
Oh, noooooo! I'm so sorry, it's the moops! The correct answer is 'the moops'.
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Re: Why 20 year US treasury is yielding more than 30?

Post by Kevin M »

SimpleGift wrote: Tue Mar 15, 2022 1:17 pm
SteadyOne wrote: Tue Mar 15, 2022 12:43 pm What is the reason 20 year UST has higher yield than 30 year? Not by much (2.59% vs 2.51%), but still. ….
My sense is that the 30-year bond has a much greater supply than the 20-year bond (only re-introduced in 2020, for the first time since 1986), and thus investors prefer it and it trades more frequently — often resulting in a slightly higher yield for the 20-year.

So this difference in yields is likely more just a market technicality than anything fundamental.
Here is a chart of 30 Yr yield minus 20 Yr yield since 1990. The gaps are where no 20 Yr yield is provided by Treasury.gov.

Image

The most recent inversion began in October 2021.

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Re: Why 20 year US treasury is yielding more than 30?

Post by Kevin M »

FRED has 20-year yields back to 1962 and 30-year yields back to 1977. Here is a chart of 30y minus 20y since 1977:

Image

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Re: Why 20 year US treasury is yielding more than 30?

Post by dkturner »

Currently 7 year Treasury Notes have a higher yield than 10 year Treasury Notes too. This frequently happens when the yield curve is flattening.
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Re: Why 20 year US treasury is yielding more than 30?

Post by Kevin M »

dkturner wrote: Wed Mar 16, 2022 1:57 pm Currently 7 year Treasury Notes have a higher yield than 10 year Treasury Notes too. This frequently happens when the yield curve is flattening.
Here is a chart of yields today and at the beginning of the year, from treasury.gov:

Image

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Re: Why 20 year US treasury is yielding more than 30?

Post by alex_686 »

muffins14 wrote: Tue Mar 15, 2022 1:11 pm There must be more demand for the 30, such that people pay more for it, thus driving the yield down relative to the 30
I will second that. Liquidity tends to be relatively low for those 2 bonds so I can see technical factors driving prices, not economic ones.

For example, I know that insurance companies get a actuarial bonus when investing in 30 year bonds over 20 year bonds. I have been out of that particular area of the world for a while but I know that the actuarial bonus was enough to distort the TIPS market.
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Re: Why 20 year US treasury is yielding more than 30?

Post by Angst »

Kevin,
what series did you use for the 20-year? I used the following:
Market Yield on U.S. Treasury Securities at 20-Year Constant Maturity, Percent, Not Seasonally Adjusted (DGS20)
but I get no data from 1987 to nearly 1994 for the 30-yr minus 20-yr. You can see my results here: https://fred.stlouisfed.org/graph/?g=N20q
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Re: Why 20 year US treasury is yielding more than 30?

Post by Kevin M »

Angst wrote: Wed Mar 16, 2022 6:33 pm Kevin,
what series did you use for the 20-year? I used the following:
Market Yield on U.S. Treasury Securities at 20-Year Constant Maturity, Percent, Not Seasonally Adjusted (DGS20)
but I get no data from 1987 to nearly 1994 for the 30-yr minus 20-yr. You can see my results here: https://fred.stlouisfed.org/graph/?g=N20q
Good question. Now that I recreate the chart of 30y minus 20y, I see the same thing:

Image

Aside from the gap due to missing 20-year data, the chart looks basically the same. Key takeaways are that the 30-20 slope was positive for most of the time since 2010, has recently inverted, and was negative (inverted) for much of the time before 2010.

I wish I had included a link to the chart I shared earlier, as I have done with this chart, so I could investigate the discrepancy. The first chart clearly shows the 20-year CMT in the title, so I really don't know what data was being used for the first chart.

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Re: Why 20 year US treasury is yielding more than 30?

Post by AlphaLess »

JoeRetire wrote: Tue Mar 15, 2022 1:24 pm
SteadyOne wrote: Tue Mar 15, 2022 12:43 pm What is the reason 20 year UST has higher yield than 30 year? Not by much (2.59% vs 2.51%), but still. … Ten year is 2.14%.
Inversion!
I believe that means the sky is falling, or will fall, or did fall, or something...
Generally, the 2-10 inversion is a sign of a recession.
Or more importantly, high frequency indicators of recession are present, and then 2-10 inverts.

20-30 inversion: just a technical thing.
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Re: Why 20 year US treasury is yielding more than 30?

Post by Marseille07 »

AlphaLess wrote: Thu Mar 17, 2022 2:12 pm Generally, the 2-10 inversion is a sign of a recession.
Or more importantly, high frequency indicators of recession are present, and then 2-10 inverts.

20-30 inversion: just a technical thing.
Yeah, not sure why but 2-10 appears to always work.

That said, it appears unusual to have a recession in 2020 then again only 2 years later.
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Re: Why 20 year US treasury is yielding more than 30?

Post by Kevin M »

AlphaLess wrote: Thu Mar 17, 2022 2:12 pm Generally, the 2-10 inversion is a sign of a recession.
Or more importantly, high frequency indicators of recession are present, and then 2-10 inverts.

20-30 inversion: just a technical thing.
FRED kindly provides a graph of the 10 minus 2

Image

While the 10-2 does generally invert before a recession, the initial inversion generally is 1-2 years before the recession starts, and the slope generally goes positive in the months leading up to the recession.

Kevin
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Re: Why 20 year US treasury is yielding more than 30?

Post by alex_686 »

Marseille07 wrote: Thu Mar 17, 2022 2:22 pm
AlphaLess wrote: Thu Mar 17, 2022 2:12 pm Generally, the 2-10 inversion is a sign of a recession.
Or more importantly, high frequency indicators of recession are present, and then 2-10 inverts.

20-30 inversion: just a technical thing.
Yeah, not sure why but 2-10 appears to always work.

That said, it appears unusual to have a recession in 2020 then again only 2 years later.
The 2 year is long enough to be considered a bond and not cash. The 2 year and 10-year prices are high quality. High liquidity, little to none technical distortions. Long historic run.
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Re: Why 20 year US treasury is yielding more than 30?

Post by Marseille07 »

alex_686 wrote: Thu Mar 17, 2022 2:36 pm The 2 year is long enough to be considered a bond and not cash. The 2 year and 10-year prices are high quality. High liquidity, little to none technical distortions. Long historic run.
I see, that's interesting to know :beer
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Re: Why 20 year US treasury is yielding more than 30?

Post by SimpleGift »

Kevin M wrote: Thu Mar 17, 2022 2:26 pm While the 10-2 does generally invert before a recession, the initial inversion generally is 1-2 years before the recession starts...
Perhaps this is why the Federal Reserve uses the 10-year - 3-month spread as its chosen metric — since this spread tends to invert quite a bit later and closer to a recession period than the 10-year - 2-year spread.
This paper touches on the choice of various maturity combinations: The Yield Curve as a Leading Indicator
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Re: Why 20 year US treasury is yielding more than 30?

Post by secondopinion »

alex_686 wrote: Thu Mar 17, 2022 2:36 pm
Marseille07 wrote: Thu Mar 17, 2022 2:22 pm
AlphaLess wrote: Thu Mar 17, 2022 2:12 pm Generally, the 2-10 inversion is a sign of a recession.
Or more importantly, high frequency indicators of recession are present, and then 2-10 inverts.

20-30 inversion: just a technical thing.
Yeah, not sure why but 2-10 appears to always work.

That said, it appears unusual to have a recession in 2020 then again only 2 years later.
The 2 year is long enough to be considered a bond and not cash. The 2 year and 10-year prices are high quality. High liquidity, little to none technical distortions. Long historic run.
I guess 2 year treasuries would count as bonds. But of course, I do not see it as being hardly anything in terms of risk. According to the backtest of short term treasuries, all 4.25% of a drawdown is quite pointless in my opinion. (https://www.portfoliovisualizer.com/bac ... ion2_2=100) To me, I personally count 2 year treasuries as being cash-like (I count anything with a <5% drawdown as cash-like, so CDs count since I can break them for a fixed penalty).

I know you have past experience and know the definitions, but in essence cash and 2 year treasuries are nearly the same for a portfolio. Look that the link: one can see that a 60/40 made with cash is essentially identical to short term treasuries (except the latter can juice a little more returns). https://www.portfoliovisualizer.com/bac ... tion3_2=40
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Re: Why 20 year US treasury is yielding more than 30?

Post by Angst »

Kevin M wrote: Thu Mar 17, 2022 2:08 pm
Angst wrote: Wed Mar 16, 2022 6:33 pm Kevin,
what series did you use for the 20-year? I used the following:
Market Yield on U.S. Treasury Securities at 20-Year Constant Maturity, Percent, Not Seasonally Adjusted (DGS20)
but I get no data from 1987 to nearly 1994 for the 30-yr minus 20-yr. You can see my results here: https://fred.stlouisfed.org/graph/?g=N20q
Good question. Now that I recreate the chart of 30y minus 20y, I see the same thing:

Image

Aside from the gap due to missing 20-year data, the chart looks basically the same. Key takeaways are that the 30-20 slope was positive for most of the time since 2010, has recently inverted, and was negative (inverted) for much of the time before 2010.

I wish I had included a link to the chart I shared earlier, as I have done with this chart, so I could investigate the discrepancy. The first chart clearly shows the 20-year CMT in the title, so I really don't know what data was being used for the first chart.

Kevin
Thanks for looking into this. I was so frustrated I couldn't figure it out and spent a lot of time at FRED, sure I'd find a way. I too wish you had included a link the first time around. :D
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Re: Why 20 year US treasury is yielding more than 30?

Post by Kevin M »

SimpleGift wrote: Thu Mar 17, 2022 3:54 pm
Kevin M wrote: Thu Mar 17, 2022 2:26 pm While the 10-2 does generally invert before a recession, the initial inversion generally is 1-2 years before the recession starts...
Perhaps this is why the Federal Reserve uses the 10-year - 3-month spread as its chosen metric — since this spread tends to invert quite a bit later and closer to a recession period than the 10-year - 2-year spread.
This paper touches on the choice of various maturity combinations: The Yield Curve as a Leading Indicator
Interesting paper. FWIW, here is a chart showing both 10y-2y and 10y-3m, the latter using the 3m secondary market rate since it goes back much further than the 3-month CMT yield:

Image

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Re: Why 20 year US treasury is yielding more than 30?

Post by AlphaLess »

Kevin M wrote: Thu Mar 17, 2022 2:26 pm
AlphaLess wrote: Thu Mar 17, 2022 2:12 pm Generally, the 2-10 inversion is a sign of a recession.
Or more importantly, high frequency indicators of recession are present, and then 2-10 inverts.

20-30 inversion: just a technical thing.
FRED kindly provides a graph of the 10 minus 2

Image

While the 10-2 does generally invert before a recession, the initial inversion generally is 1-2 years before the recession starts, and the slope generally goes positive in the months leading up to the recession.

Kevin
Seems like when the 10-2 touches zero, we see a recession soon.

Is this causal? Who knows.
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Re: Why 20 year US treasury is yielding more than 30?

Post by AlphaLess »

Marseille07 wrote: Thu Mar 17, 2022 2:22 pm
AlphaLess wrote: Thu Mar 17, 2022 2:12 pm Generally, the 2-10 inversion is a sign of a recession.
Or more importantly, high frequency indicators of recession are present, and then 2-10 inverts.

20-30 inversion: just a technical thing.
Yeah, not sure why but 2-10 appears to always work.

That said, it appears unusual to have a recession in 2020 then again only 2 years later.
Unusual? Maybe the 1980 and 1982 recessions would like to have the floor for 5 minutes.
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Re: Why 20 year US treasury is yielding more than 30?

Post by AlphaLess »

Kevin M wrote: Wed Mar 16, 2022 3:57 pm
dkturner wrote: Wed Mar 16, 2022 1:57 pm Currently 7 year Treasury Notes have a higher yield than 10 year Treasury Notes too. This frequently happens when the yield curve is flattening.
Here is a chart of yields today and at the beginning of the year, from treasury.gov:

Image

Kevin
If you are buying a portfolio of long-term treasuries, 20 is the sweet spot right now.

Why buy 50% 10Y + 50% 30Y, when you can buy 100% 20Y.
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Re: Why 20 year US treasury is yielding more than 30?

Post by eric321 »

My two cents on why 7 year and 20 year yield more than 10 year and 30 year respectively.

Both are driven by bond futures and a rapid selling of futures to unwind futures related to volatility. Risk parity funds selling positions to maintain a certain volatility weight (own more in quiet times, own less in volatile times) and general selling from those that need to make margin calls.

The most liquid bond future is the TYs which is a 6.5 year to 10 year future, which based on futures math right now trades as a 6.5 year or 7 year bond. Same ideal with the "long bond" future which is a 15-25 year future.
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Re: Why 20 year US treasury is yielding more than 30?

Post by 100factorial »

SteadyOne wrote: Tue Mar 15, 2022 12:43 pm What is the reason 20 year UST has higher yield than 30 year? Not by much (2.59% vs 2.51%), but still. … Ten year is 2.14%.
Another driver of inversion at the long end of the yield curve is convexity. Bond duration grows approximately linearly in maturity whereas convexity grows quadratically. Because long bonds have so much convexity, which is valuable, they don't require as much yield. This convexity effect is even more pronounced on the UK Gilt curve, which goes out fifty years and is inverted from thirty to fifty. The value of convexity, and the resulting curve effect, is greater when interest rate volatility is elevated as it is now.
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Re: Why 20 year US treasury is yielding more than 30?

Post by dziuniek »

Personally more worried about 3s paying more than 5s as of Friday.
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Re: Why 20 year US treasury is yielding more than 30?

Post by Charles Joseph »

Thesaints wrote: Tue Mar 15, 2022 1:15 pm People expect that 20 years from now yields will be lower than they are now.
Hey whatever happened to Thesaints? I always enjoyed their posts.
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