The new year begins with interest rates noticeably below their levels at the start of 1998. The Treasury yield curve has shifted lower by about 60 basis points. It has also flattened out, with the 3-year, 3-month spread decreasing from 21 to five basis points, and the 10-year, 3-month spread decreasing from 20 to 15 basis points. The yield curve has also taken on a more jagged appearance, showing inversions between six and 12 months, two and five years, and seven and 10 years. It would be difficult to concoct a simple story that would justify such a curve; quite possibly it reflects some combination of short-term confidence, uncertainty over the medium run, and long-run confidence about price stability. Rates on long-term corporate bonds and mortgages have seen less of a decrease because those securities did not benefit from the flight to quality after the Asian crises and Russian default.
Suggested citation: "Interest Rates," Federal Reserve Bank of Cleveland, Economic Trends, no. 99-01, pp. 06, 01.01.1999.