THE LONG VIEW ON BOND YIELDS
Here’s some good perspective on the long-term trend in US government bond yields via Chart of the Day:
“For some perspective on all-important long-term interest rates, today’s chart illustrates the 112-year trend of the 10-year Treasury bond yield (thick blue line). Escalating concerns over Europe in addition to a struggling global economy have encouraged investors, institutions and governments alike to move a portion of their investment dollars to the relative safety of the US. This has resulted in a significant decline of the 10-year Treasury bond yield. In fact, the 10-year yield has declined a fairly dramatic 340 basis points (i.e. 3.4%) since the peak of the credit bubble. This decline has brought the 10-year Treasury bond yield to a 112-year low. The decline of the 10-year Treasury bond yield has been significant enough to bring the 10-year yield near resistance of what is a 26-year downtrend channel.”
Cullen Roche
Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.
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11 Comments
From 1950 to 1980 as the 10 year was rising total US credit market debt grew ~20% to GDP. From 1980 to 2009 as the 10 year was declining total US credit market debt grew 190%.
How in the world did the FED justify this massive increase in the rate of debt accumulation? Slow GDP growth over those years required lower and lower interest rates? Debt didn’t matter?
Very good point. Also study the implications of that moron Volcker jacking our national debt due to his crazy interest rate policies. Very interesting reading.
As yields drop, debtors can go more into debt at a constant or declining carrying cost. If you could make the interest payments at the peak of the 70s inflationary era, you could make lower payments on even higher debt as rates came down. This is the phenomenon that drove most economic growth from the 1981 rate peak until the present.
Eventually, the trend must reverse and a new inflationary era must return. The question is when???
What a great time to be in equities and commodities. Just buy and forget it.
What, bonds are going to be at 0% FOREVER????????
Spend a lot of money. You’ll be in the same boat as the government and are they going to kill themselves. Nah, the easy road is much too tempting.
Eventually it will all end in tears, but not just yet…
Good luck out there.
Which equities and commodities do you like best? What are your best plays on nat gas?
Gold, copper, silver, and equities that mine the same. Good utility plays.
I don’t mess with nat. gas.
Seems “”Chart of the Day”" doesn’t believe the “”FED sets interest rates”" story either.
Look at a graph of the effective fed funds rate and the 10-year yield and tell me there isn’t a relationship. Then look at a graph of the Fed’s target rate and the effective fed funds rate and tell me there isn’t a relationship. The Fed sets the fed funds rate which is the most important variable in pricing the 10-year. The treasury market is easy…
The Fed sets rates, but the Fed’s actions are driven by larger long-term forces. The Fed raises rates in times of inflationary pressure and reduces rates to spur economic growth.
I want to know when the rate trend will reverse and begin a new long term uptrend.
Currently it’s my view that rates/yields ($TNX) will/could decline even more down to say 1%, 0.5% or even 0.2%. But it depends on what the charts look like. If it spikes downward (like e.g. the NASDAQ spiked upwards in 1999/2000) then that would signal for me the end of the 31 year bull market in government bonds. When ? Perhaps this year of or in 2013. The charts will be the judge for that.
“The Fed sets rates, but the Fed’s actions are driven by larger long-term forces. The Fed raises rates in times of inflationary pressure and reduces rates to spur economic growth.
I want to know when the rate trend will reverse and begin a new long term uptrend.”
Maybe you have answered your own question? If the 10-year is largely driven by the Fed’s target rate and the Fed sets its target rate based on inflation…
Then it seems to lead that the long-term trend will change when you have higher inflation, via whatever measure the Federal Reserve decides to use.