Since last month, the yield curve has flattened and shifted downward. The spread between the 3-year Treasury note and the 3-month T-bill narrowed from 43 basis points to 21 basis points, and the spread between the 10-year Treasury bond and the 3-month T-bill went from 51 to 41 basis points. Especially conspicuous flattening has occurred since this time last year, when the 10-year, 3-month spread stood at 140 basis points. The coupon yield curve remains close to the zero-coupon yield curve. As expected, the 10-year zero rate exceeds the 10-year coupon rate because the coupons give the bond a shorter effective duration than the zero. This is less important in shorter rates, where the yield on zeros exceeds that on coupons.
Suggested citation: “Interest Rates,” Federal Reserve Bank of Cleveland, Economic Trends, no. 98-02, pp. 06, 02.01.1998.