Chart of the Week: Record Low Yield on 2-Year U.S. Treasury Notes

While bonds tend to be largely a sideshow in this space, there is no ignoring the record low yields we are seeing at certain places along the yield curve.

This week’s chart of the week captures 20 years of the history of the yield on the 2-Year U.S. Treasury Note (solid black line), along with the S&P 500 index (green area chart.) In some respects, the history of the yield on this instrument reflects a history of the strength of the economy as well, with the Fed’s easy money policy during the 2000-2003 period triggering a period of extended low interest rates and the 2008 financial crisis rewriting history in terms of low yields.

I find the interesting part of the chart to be from the middle of 2009 onward. This is a period in which the stock market rallied significantly, yet the yield on the 2-year note continued to plummet, all the way down to the current low of 0.55%. This was at least partly a result of investors heeding the concerns of St. Louis Fed President James Bullard, who warned on Thursday and Friday about the possibility of the U.S. slipping into a Japan-style deflationary spiral. (Click to enlarge)