Graphic: Short-term Treasuries offering positive yields
The Federal Reserve paused interest-rate hikes June 14 after 10 consecutive increases, but said it views it "as likely that some further rate increases will be appropriate this year." Nonetheless, inflation has shown signs of slowing. With the yield curve remaining inverted and recessionary pressures potentially on the horizon, this could prove an opportune time to lock in short-term risk-free yields.
Spiking yields: Short-term Treasury yields have dramatically increased since the start of 2022. The 2-year note yields 4.68%, 390 basis points higher than January 2022. The one-month yield reached more than 6% at the end of May during the debt-ceiling debate before falling back to 5.16% as of June 21.
Short-term U.S. Treasury yields
Positive returns: The Bloomberg U.S. Treasury 1-3 Year index has returned 1.2% year to date as of June 21. This marks a reversal from the -0.6% and -3.8% returns in 2021 and 2022, respectively.
Short-term U.S. Treasury returns
Real return: One-month to 2-year Treasury yields are currently higher than the most recent 4% increase in the consumer price index. Economists expect a 2.6% increase in the CPI for 2024 and 2.4% in 2025.
Treasury yields vs. inflation
Separate account outflows: Short-term government bond separate accounts have suffered outflows for the past two quarters. Net outflows were $562.2 million in Q4 2022 and $422 million in Q1 2023.
Short-term government bond flows, separate accounts (millions)
*May 26 & June 21, respectively. **CPI for 2023 is May 2022-May 2023. Sources: U.S. Department of the Treasury, Bloomberg LP, Federal Reserve, U.S. Bureau of Labor Statistics, Morningstar Inc.
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