Watching the Five-Year Treasury

Over the last few months, the five-year Treasury has emerged, in my opinion, as the most taper-sensitive security on Wall Street.

In May, the five-year was yielding a puny 0.65%. By early September, it had jumped to 1.85%. Since the Fed decided not to taper in September, the yield has fallen to 1.4%.

The yield has drifted lower a few times since then, but for the most part, 1.4% seems to be the new floor for the five-year. The lesson is that if you want to see what the market’s thinking about the Fed, first check the five-year.

I think the next big test will be next Friday’s jobs report. The Fed has said they’ll be data-dependent, and this month proved that. If the jobs report comes in weak — say below 180K NFP — that could point to a lower yield for the five-year.

Posted by Eddy Elfenbein on September 27th, 2013 at 1:26 pm

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