FYI: Despite widespread predictions to the contrary last year, interest rates this year have plunged and bonds soared.
The yield on the 10-year Treasury TNX, +0.89% has been nearly halved in just nine months, for example, from a high of 3.19% late last year to its current 1.70%. You shouldn’t have been surprised: As I wrote in a February 2018 column for Retirement Weekly, interest rates at that time were not below average—when properly judged on an after-inflation and after-tax basis. So, from the perspective of their historical range between low and high extremes, they had just as much a chance of falling as rising.
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For this column I update that analysis, since it’s not obvious that the situation today is any different than in February 2018. While nominal interest rates have plunged, so has expected inflation. Very recently the Labor Department reported that wholesale inflation was dead in the water.
In updating this analysis, I am following the lead of a study that was circulated a couple of years ago by the National Bureau of Economic Research (NBER). Its authors were Daniel Feenberg, a research associate at NBER, Ivo Welch, a finance professor at UCLA, and Clinton Tepper, a Ph.D. student in finance at UCLA. The key contribution of their study is the construction of an historical database of Treasury yields after inflation and taxes are deducted.
Regards,
Ted
https://www.marketwatch.com/story/whats-going-on-with-interest-rates-2019-08-28/print
