Treasury Bond Yields Have Yet to See a Bottom
Even with rates this low, it only takes a small drop to generate big returns on longer-dated maturities.
Low yields are no reason to avoid bonds.
Photographer: Bloomberg
As the 1970s came to a close, I sensed that double-digit rates of inflation were about to turn to disinflation, or smaller and smaller overall price increases. Given the close correlation between inflation and yields on U.S. Treasury securities, I forecast in 1981 a dramatic decline in the 30-year yield from what was then 14.7% to 3% and stated, “We’re entering the bond rally of a lifetime.”
After the 2007-2009 Great Recession, inflation rates continued to fall and the economic recovery was the slowest of any in the post-World War II era. So I lowered my yield target for the long bond to 2%. In recent weeks, the yield fell as low as 1.90%. Now, many are wondering whether the U.S. government debt market could join the $15 trillion of sovereign bonds globally that carry negative yields.