US Treasury Yield Curve and Interest Rates

I did the spreadsheet of US Treasury Yield Curve and calculated the difference between two sets of rates (i) 10-year rate minus 1-year rate, and (ii) 10-year rate minus 3-month rate. Here're the two graph, first one starting from 2 January 1962 to today and the second from 1982:




At the time of writing, Index 1 is 1.92 and Index 2 is 2.42. If you only look at the yield curve, it is still unclear where we are in the cycle. I also found the following two graphs, which are similar to mine from http://www.safehaven.com/article-4681.htm..






The latest yield data can be found here. StockCharts.com has an excellent animated yield curve; click here.

To estimate the odds of Fed rate cut or hike, I found the following from

http://techfarm.blogspot.com/2007/08/will-fed-cut-rates-how-to-estimate-odds.html

"Everyone is on Fed Watch. People are wondering whether the Fed will cut rates or not. Can we figure out the direction of interest rates?

We can.

The Chicago Board of Trade has an instrument called the 30 day Fed Funds Futures Contract. By looking at the prices of these Futures, we can better estimate the odds.


Getting Information about the Fed Funds Futures Contract

Here's the Current Chicago Board of Trade 30 day Fed Funds Future Contract.

We can also use FutureSource.com's Fed Funds Futures Quotes.

As of this moment, using FutureSource.com's quotes, September 7, 2007 shows 95.13 and October 7, 2007 shows 95.225. What you do is subtract that number from 100. September 7, 2007 will have the value (100-95.13) = 4.87% and October 7, 2007 has the value (100-95.225) = 4.775%. This is called the implied Fed Funds Rate on the Futures Contract.

The Current Fed Funds Rate is 5.25%. And since there is no September 7, 2007 meeting, it is better to look at the October 7, 2007 contract instead. So by October, the implied interest rate is 4.775%, so rate cuts are likely.

The next two Fed meetings are on 9/18/2007 and 10/30-31/2007.

How do you calculate probabilities?

There's a financial calculator online to help calculate probabilities:
Fed Funds Calculator"