US Treasury Yield Peaks at 15.78%, 40 Years Ago

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 20-Year US Treasury yield peaked at 15.78% on September 30, 1981 and then fell by a 100bps over the next 6 days, noted Jason Zweig of the Wall Street Journal in a very instructive article “The Biggest Day in Bonds That No One Noticed”. The main takeaway from the article was the extraordinary uncertainty that financial markets are capable of demonstrating; whether it is in following trends longer than expected or reversing trends when least expected. Corporate bonds yield almost doubled in four years, from 7.92% to 15.49% from September, 1977-1981. There was little interest in long-term bonds since investors were expecting interest rates to keep rising, and even short-term money-market funds were yielding 17% or more. But things changed on October 1st, 1981. The long-term interest started falling and registered 50% decline in 5 years, by September 30, 1986. So are we at another such moment today, 40 years later? And maybe we’re about to witness of the long reign of ultra-low interest rates.

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