You all remember March 6th, 2009, right? Some days are easier to remember than others and March 6th, 2009 will not easily be forgotten as that was the day when the S&P 500 made its now infamous “666” intraday low and it also marked the closing price low of 683 for the S&P 500 during the financial crisis. Seems like a very long-time ago as the S&P 500 is roughly 1300 points higher than the intraday financial crisis low.
Interestingly, as of the close yesterday, the spread between the 10-year treasury and the 30-year treasury fell to its lowest level (69 bps) since that infamous day. Since April 2013, the long-end of the yield curve has steadily fallen by 55 basis points.
It is not just the long-end of the yield curve that has narrowed. Inflation expectations implied by both 10-year and 30-year TIPS have fallen substantially since the beginning of August. Breakeven inflation implied by 30-year TIPS has fallen by 25 basis points and breakeven inflation implied by 10-year TIPS has fallen by 34 basis points. The spread between 10-year and 30-year TIPS has also narrowed by 25 basis points since August 13th. If the dollar continues to strengthen, it seems reasonable to expect the spread between 10-year and 30-year TIPS has further to fall.