The Treasury yield curve widened to a record today as investors bet an accelerating recovery in the US economy will fuel inflation and hurt demand for unprecedented sales of government debt. The yield curve is often viewed as a barometer of the health of the US economy.
The difference between the yields of the 2-year Treasury note and the 10-year Treasury note yields widened to 281.4 basis points (a basis point is 0.01 percentage point) from 145 basis points at the beginning of the year. The yield on the benchmark 10-year Treasury note itself climbed 10 basis points with the yield climbing to 3.64%, the highest level since August, as prices for the note fell.
The gap between yields on Treasuries and so-called TIPS (Treasury Inflation-Protected Securities) due in 10 years closed above 225 basis points for four days last week, the longest stretch since August 2008. This gap is an indicator of the outlook on future consumer prices and inflation. This measure is showing more people are currently worried about inflation than deflation.
The recent sell-off in the 10-year Treasury note has been sparked by unprecedented borrowing by the United States government. US marketable debt increased to a record $7.17 trillion in November from $5.8 trillion at the end of last year. Questions are arising about who will buy all of the Treasury securities the US government is attempting to sell. As Chinese central banker, Zhu Min, said on December 17th, the US cannot expect other nations to increase purchases of Treasuries to fund its entire fiscal shortfall.