The Low Interest Rate Century

During the Great Recession, I argued that low-interest rates were the new normal and that during the 21st-century people would be constantly complaining about “bubbles”. But even I never envisioned rates being this low.

Ten-year bond yields are still 20 basis points above the 2016 lows, while 30-year bond yields have been hitting all-time record lows. Why the difference?

In my view, the 10-year yield is a bit more influenced by cyclical factors, and the economy was a bit weaker in 2016 than it is today. In contrast, the sharp fall in the 30-year bond yield reflects the market gradually realizing that low rates are not just a passing fad, but rather are the new normal.

I thought we’d cycle between 0% and 3% over the business cycle, now it looks more like a 0% to 2% cycle might be the new normal. This cannot be explained by inflation, which isn’t much different from what it was in the late 1990s.

(Click on image to enlarge)