July 2, 2003

Market Commentary

The Treasury yield curve tells you everything you need to know.

It has been my experience that it is very wise to pay close attention to the shape of the treasury yield curve. When short-term yields higher than long-term rates, this is an indication of a economic slowdown or recession. The opposite; low short-term interest rates and high long-term interest rates are an indication of sustainable growth to come. As an investor, you should pay attention to extremes in the shape of the yield curve. The rates that are paid are not as important as the spread between short and long term Treasury rates.

At this point the Fed Funds rate stands at 1.25%. The 10 year treasury notes pays 3.53% and the 30 year treasury pays 4.57%. This is a great indicator of growth to come for the US Economy over the next 18 months. It also is a leading indicator that rates for bond investments of maturities under 5 years will be higher 18 months from now.

Sincerely,
Sam Clem
Clem Investments