R.I.P. bond bull market, 1981-2016

R.I.P. bond bull market, 1981-2016

On September 30, 1981, the 10 year US Treasury bond yielded 15.84%. It has not been that high since.  On July 8, 2016, it fetched only 1.37%.  It is unlikely to see that low rate again for a very, very long time.  Those two dates likely mark the birth and death dates for perhaps the biggest bond bull market in history.

Here (from CNBC) is the relevant graph:

Today the 10 year closed at 3.067%, having hit an intraday high of 3.09%.  In the 1990s it twice made 3 year highs.  In 2006 it made a 4 year high. By contrast, the last time it was as high as it closed at today was 7 years ago in 2011.

The immediate cause of death for the bond bull market was likely the ill-conceived multi-$Trillion GOP tax giveaway to the wealthy enacted in December, in the midst of an economy operating near full capacity.

Perhaps of more immediate importance, CNBC also reported  (via Mortgage News Daily) that 30 year mortgage rates had risen to 4.875% today. That is also a 7 year high. Mortgage rates had been as low as 3.30% in 2013 and 2016.

A few months ago I estimated that it would take a minimum of a Treasury yield of 3.25% and a mortgage rate of 5%, for at least 6 months, to overcome the demographic tailwind underpinning the housing market.  We are now close to both of those rates. And refinancing debt at lower rates, which did so much to help keep the middle and working classes afloat during the last 30+ years, is now dead.

In the longer term, I believe we have now entered an interest rate period similar to the late 1950s-1980, where each economic expansion saw higher and higher interest rates.

Meanwhile, the time to rebuild our worn-out infrastructure at ultra-low interest rates has been completely wasted. I can see the future, and it makes me sick to my stomach.

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