Credit Leads the Way

In the past month, we have observed historically low U.S. interest rates. On August 31, the 10-year US Treasury Note  closed to yield 2.473%, and the 30-year US Treasury Bond closed to yield 3.522%. Outside of the credit crisis of 2 years ago, these are the lowest yields on Treasury bonds in nearly 50 years according to Federal Reserve data, which ends in 1962. Peak U.S. interest rates were observed on October 2, 1981. On that day, the 10-year US Treasury Note closed to yield 15.68%, and the 30-year US Treasury Bond closed to yield 15.07%. Fully two generations of investors have been conditioned to approach the financial markets in a way that presumes an environment of declining interest rates. That assumption is now erroneous. Everything investors knew about how to make money in the financial markets will have to be substantially altered in this knew adverse interest rate environment.