Long Term Perspective
The spread between the 5-year Treasury note and the federal funds rate averaged -189 basis points in the 1980s. This was a period of high interest rates and (relatively) high inflation. The spread became positive in the 1990s, averaging 116 basis points.

Short Term Perspective
The spread between the 5-year note yield and the federal funds rate averaged 90 basis points between 2000 and 2002. The yield on the 5-year note was higher than the fed funds rate through the first half of 2000 as market players expected the Fed to tighten monetary policy. As economic conditions changed, and investors believed that the Fed would reduce the fed funds rate target, the yield on the 5-year note fell below the funds rate in the second half of 2000. The spread turned around in 2001 after the Fed began to ease aggressively. Along with other Treasury securities, the yield on the 5-year note edged up slightly in April, but dipped in both May and June as bond investors expected another rate cut. The Fed did reduce the funds rate target 25 basis points after their June FOMC meeting.

Average yields on 5-year notes were about unchanged in October from the September average. Yields fluctuated over the course of the month, but ended higher at the end of the month than they were at the beginning of the period.