When the 10-year Treasury yield briefly dipped under 3.10% on an intraday basis one day in June 2003, some thought a milestone had been set that would last for years, even decades. But suddenly there’s reason to wonder if the era of low rates is poised for renaissance.
The immediate cause for such thinking comes from looking at yesterday’s action in the bond market. The 10-year yield closed at 4.47%. That’s the lowest close this year, as our chart below shows.
That may come as a surprise for some, although in the broader context of history it doesn’t look out of place. As our second chart below illustrates, the longer history has been one of falling interest rates, interrupted only by temporary jumps higher. The latest jump upward has been unusually long. But is it temporary? Or is the longer trend of falling rates reasserting itself once more?
It’s been popular to look at the trend since the low of June 2003 and conclude that the era of cheap money has ended and that rates will slowly but inexorably rise from here on out. The prediction has more or less held true in the last four years or so. But after yesterday’s dip, one might take a minute to reassess the implications for portfolio strategy if rates take a turn south in a big way.