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November Total Return Review: Yield Curve, Convexity And Total Returns
The attached tables update the total returns through November. Total returns on long-term Treasuries resumed moving higher after the yield curve renewed its flattening in June 2006. This is consistent with earlier observations that the value of convexity would outweigh negative carry. It also raises the prospect that any relaxation of credit by the Federal Reserve and concomitant re-steepening of the yield curve will reduce the total returns on long-dated Treasuries.