[AR] Bond yields? On a rocket science list? (was Re: Re: VSS Unity powered flight)
- From: "Perry E. Metzger" <perry@xxxxxxxxxxxx>
- To: William Claybaugh <wclaybaugh2@xxxxxxxxx>
- Date: Sun, 8 Apr 2018 18:14:01 -0400
We seem to be discussing bond yields.
On Sun, 08 Apr 2018 20:13:43 +0000 William Claybaugh
<wclaybaugh2@xxxxxxxxx> wrote:
Perry:
Assertion is not argument.
According to the OECD ten year US Treasuries peaked at around 15%
in 1979.
You have the peak wrong. The peak was in 1981, not in 1979. In 1979,
the ten year yield only got as high as about 10%, and only at the end
of the year.
You also seem to have missed the "inflation adjusted" bit. Inflation
adjustment is important, because investors are not fooled by nominal
rates, and care about actual return and not nominal return.
As you may remember, inflation in the late 1970s hit double digit
levels. Because inflation around then was double digit and fluctuating
rapidly, investors demanded unusually high nominal yields in order to
get reasonable real rates of return.
Even so, investors were losing money on the ten year note through much
of the period. The ten year note didn't hit 10% until the end of 1979,
but the inflation rate in 1979 averaged about 11.25%, and CPI got all
the way up to over 13.25% at the end of the year, which was when the
yield on the note got up to about 10%. Thus, a holder of the 10 year
note at the time was paying money to the government (given inflation
and also likely taxes) to hold their money.
The actual peak yield for the ten year note was at the end of
September, 1981, when the rate hit a hair over 15.4%, but it was that
high only for a brief period -- mostly it was more like 14% and even
lower -- and those yields were again mostly the result of the
continuing high inflation rate.
The CPI at the start of 1981 was just under 12%, and the average for
the year was something a bit more than 10.25%. For most of the year,
the effective yield for a holder of the ten year was still no more
than 3% or a hair above.
Even so, 3% was a pretty good deal by historical measures. Average
real return over the last century for the ten year note has been
significantly under 2%. It depends a bit on how you measure yield (are
you counting people who buy at auction and hold until maturity, and
how do you measure inflation?) but many people claim the real rate of
return on the ten year has been more like 1.6% or 1.7% on average for
the last 100 years.
The rest of your claims are equally untrue: you are are either just
making this up or you simply do not know that you are talking about.
Anyone who wishes to can check my numbers. CPI data and bond yields
based on traded bond prices are both matters of public record. Plot
the time series yourself.
Perry
--
Perry E. Metzger perry@xxxxxxxxxxxx
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- » [AR] Bond yields? On a rocket science list? (was Re: Re: VSS Unity powered flight) - Perry E. Metzger