MBS Day Ahead: Two Ways to Look at The Yield Curve

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Posted To: MBS Commentary

The yield curve--technically a reference to the full spectrum of Treasury yields versus duration/maturities (i.e. 2, 3, 5, 7, 10, 30 years), but often simply assumed to be the 2yr vs 10yr curve--has been a topic of increasing interest lately. But that doesn't mean that INTEREST (in terms of rates) is increasing. Well, sometimes it does and sometimes it doesn't. I'll explain... Because the yield curve is determined by one value minus another, it can move for a few different reasons or in a few different ways. Using 2yr and 10yr yields hereinafter, let's count a few basic ways the curve can steepen (10s and 2s getting farther apart) or flatten (10s and 2s moving closer together). 1. 10yr yield higher / 2yr yield flat = STEEPER 2. 10yr yield higher / 2yr yield lower = STEEPER 3...(read more)

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