Pragmatic Capitalism

Practical Views on Money, Finance & Life

The Long View on US Government Bonds

One thing I constantly hear is “interest rates only have one direction to go – UP!”  There’s this myth that t-bond yields and interest rates in general just have to go higher.  But history does not prove this at all.  In fact, history tells quite a different story.

The chart below helps put things in perspective.  Since 1871 US Treasury Bond yields have averaged 4.3%.  Today’s rates of 2.8% are certainly lower than that, but not at record lows.  We’re still about 1% off those levels seen at several points in the past 125 years.

It’s also interesting to note that the high rates of the 70’s are a substantial anomaly in the data. It looks like many are suffering from a case of recency bias here.  And by recent, I do mean the 70’s.  That’s not entirely inappropriate given the long duration of these bonds, but when one steps back and reviews the true long-term history of bond yields the current environment looks much more benign than most imply.

(Chart via Hoisington)

Cullen Roche

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC.Orcam is a financial services firm offering asset management, private advisory, institutional consulting and educational services.He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance and Understanding the Modern Monetary System.
Cullen Roche

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