Long Term Perspective
The spread between the 10-year Treasury note yield and the federal funds rate averaged -182 basis points in the 1980s. Interest rates were generally high during the period, and so was inflation. In the 1990s, the spread turned around so that the 10-year note yield surpassed the funds rate by 150 basis points on average.

Short Term Perspective
In 2000, a couple of factors helped to push down yields on long-term Treasury securities. First, the Treasury announced that it would reduce the supply of 30-year bonds, which not only increased demand for 30-year bonds, but also for 10-year notes, thereby pushing down yields. In the middle of 2000, economic conditions started to soften and bond investors began to expect the Fed to lower the fed funds rate target. When the Fed indeed began to show an aggressive pattern of easing in 2001, the spread became positive once more. Over the entire 2000-01 period, the spread averaged 45 basis points.

Yields on 10-year Treasury notes were nearly unchanged in October from the September average, although yields were higher at the end of the period as economic data became more upbeat.