The 2-year Treasury note’s yield made the news this week when it rose to roughly 3.5%, its highest level since 2007. This is significant because it is currently one of the highest yielding bonds on the Treasury yield curve, shown as the green line on the chart above.

More importantly, however, we also show the breakeven yield curve as the gold line on the chart, just above the current yield curve. The points on this curve represent the maximum amount that yields could rise before the negative price movement wipes out the gain from interest payments.

Right now, the 2-year Treasury’s breakeven yield is 5.74%. That equates to a 2.21% cushion against rising yields. In other words, at a current rate of 3.53%, the 2-year yield could rise another 2.21 percentage points before investors start facing losses.

Compare that to the roughly 0.4% cushion for the 10-year Treasury. If the 10-year were to rise more than 0.4 percentage points from its current rate of 3.27%, the price losses would overwhelm the interest payments.

So, the takeaway is that in this environment, the 2-year Treasury clearly has a better risk/return dynamic than its competitors further out on the yield curve. This is something to keep in mind for investors looking to get more bang for their buck right now versus what cash and longer-term bonds are yielding.


This is intended for informational purposes only and should not be used as the primary basis for an investment decision.  Consult an advisor for your personal situation.

Indices mentioned are unmanaged, do not incur fees, and cannot be invested into directly.

Past performance does not guarantee future results.