Monday, January 5, 2015

Value In The Five Year Note - Tight 5s/10s And 5s/30s Because The Five Year Hasn't Caught Up Yet

I mentioned in December,

"I think the value is in the 5y note. You get 1.65% yield vs 2.77% on the 30 year."
That was a spread of 112 basis points. Now the five year yields 1.57% and the 30 year yields 2.6%; the spread has decreased to 103 bps. An extra 25 years costs the treasury only 1% a year! How can they not be terming out all their debt right now?

Five year/ten year yield ratio.

Five year/thirty year yield ratio

1 comment:

Nathan said...

How would you suggest trading this CP? I'm willing to believe that the 5 yr has farther to fall in absolute yield than the 10 or 30 yr, but it's not obvious to me how you'd exploit that.