Weekly Treasury Simulation, April 11, 2025: Most Likely Range For 3-Month Bills In 10 Years Rises To 1% To 2%

2025-04-14 15:07:31 ET

Summary

• The most likely range for 3-month bill yields edged into the 1% to 2% range, just 1 basis point more likely than the 0% to 1% range. Treasury 2-year yields moved to 3.96% this week from 3.68% last week. At 10 years, this week’s yield is 4.48%, compared with 4.01% last week. As a result, the current 2-year/10-year Treasury spread is now 0.52% compared to 0.33% last week.
• The maximum probability that the 2-year/10-year Treasury spread will be negative again in the coming ten years is 25.1% in the 91-day period ending September 21, 2040, compared to 23.8% last week.
• The long-term peak in 1-month forward Treasuries is now 5.92% and well above the shortest maturity forward rate at 4.37%. The longest maturity 1-month forward rate is now 4.02% versus 3.89% last week.

Summary

As explained in Prof. Robert Jarrow’s book cited below, forward rates contain a risk premium above and beyond the market’s expectations for the 3-month forward rate. We document the size of that risk premium in this graph, which shows the zero-coupon yield curve implied by current Treasury prices compared with the annualized compounded yield on 3-month Treasury bills that market participants would expect based on the daily movement of government bond yields in 14 countries since 1962. The risk premium, the reward for a long-term investment, is large and widens over the full 30-year maturity range. The graph also shows a decline in expected yields at a steady pace for the full 30 years. We explain the details below.

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