The U.S. Treasury yield curve compares the yields of short-term Treasury bills with the yields of long-term Treasury securities, such as notes and bonds. A normal yield curve indicates that investors are confident about the economy and slopes upwards because the yields on long-term Treasury securities will be greater than the yields on short-term Treasury securities. An inverted yield curve occurs when short-term yields are greater than long-term yields. This happens when investors expect the economy to do worse in the short run and then improve in the long run. Lastly, a flat yield curve occurs when yields are low across the board and indicates that investors either expect slow growth or that economic indicators are mixed causing some investors to expect normal growth, while others aren’t as sure about growth rates. Remaining informed about yield curves is helpful because it’s one of the data points that legislators in Congress and the Federal Reserve consider when deliberating how best to craft fiscal and monetary policy. The policies they implement affect interest rates and the cost of borrowing for consumers and businesses across the country, including senior housing providers. Currently, interest rates are low but are projected to increase next year. Before this occurs, senior housing participants that are interested in obtaining inexpensive capital for acquisitions or other purposes should contact the Chicago-based financing firmCambridge Realty Capital to learn more about the many different financing programs that it offers.
The Yield Curve Flattens
Last week, speculation by investors that the Federal Reserve would increase interest rates sooner than projected led to low yields across the board and a flattening of the yield curve. While the economy has improved since growing at a scant .1% during the first quarter, the attractiveness of safer assets like long-term Treasuries boosted demand for these securities and reduced their yields in the process. At the same time, hawkish statements by some members of the Fed, a deteriorating situation in Iraq that some investors believe could lead to an increase in oil prices, and slower retail sales during the month of May, slowed demand for short-term Treasuries and pushed up yields on these securities. For example, yields on five-year Treasuries increased to approximately 1.71% by the end of last week, while yields on thirty-year Treasuries fell to roughly 3.40% by the end of the week. The spread between the two was the narrowest it has been since September 2009 and indicates that investors are either expecting slow economic growth in the future, or are at least having difficulty determining what future growth rates will be.
A flattening yield curve won’t hurt the economy but it does give policymakers some additional information to consider when making decisions. As Congress and the Federal Reserve continue to debate policy changes, senior housing providers who are interested in taking advantage of the current low interest rate environment should continue to look to Cambridge Realty Capital for their financing needs.