When 61 Basis Points Seems Like A Lot

As of the close yesterday, the US two-year treasury yield was sitting at 61 basis points. For a little perspective, the two-year started the year at 39 basis points and hit a low in September 2011 of 17 basis points. However, keep in mind that two-year yields in the US in the 1990's ranged from 400 basis points to 800 basis points. We bring this all up because yesterday two-year yields in Japan fell into negative territory. In today's ZIRP world, Japan isn't alone in having negative yields. Two-year yields in Germany, Switzerland and Belgium are currently negative and in France, Denmark, Ireland, and the Netherlands two-year yields are all hovering within basis points of the zero line (and Sweden is sitting at 8 basis points). A 60 bps two-year yield starts to look even more enticing after taking into account that yields in Italy, Spain, Portugal, Hong Kong, and Singapore are all lower than where the US two-year currently sits. We would suspect that this interest rate differential between the US and most of the developed world should continue to be a tailwind to further USD strength.