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Three- and five-year Treasuries collide

For the first time since mid-2007, the three- and five-year Treasury yields are at parity, with the three-year briefly rising above the five-year at midday Monday. The two yields have converged in the years following the global financial crisis, with the spread rarely dipping below 30 basis points, a mark that served as the inflection point, reversing the falling slope of the yield curve. What makes this instance, beginning at the end of 2016, different, is the magnitude of the convergence. The current tightening spreads have lasted about as long as the last three instances with similar average daily declines (0.01); about half of the days over the periods saw the spread between the two decline.

About 420 days between the start of 2011 and mid-2012, a period that included the taper tantrum, saw spreads fall from around 100 basis points to about 30 basis points, before widening again. The next period of falling spreads occurred between December 2013 and October 2016, spanning about 700 trading days, when spreads fell more gradually, but again failed to fall below 30 basis points. In this most recent case, spreads fell past 30 basis points and continued lower as the two rates moved less in unison with one another.