Long Term Treasury Yields Scream 2007

This Bloomberg graphic taken from The Research Puzzle gives a nice snapshot of where treasury yields have gone over the last two decades. Yields for different maturities of U.S. treasuries are shown by each colour, with 30-year bonds in light green.First, it’s clear that the longest-term 30-year bonds have rarely been fooled for long by short-term cuts to interest rates. Furthermore, while 30-year yields momentarily collapsed during the credit crisis, no doubt due to safe-haven panic buying of the times, they snapped back pretty fast and today yields are back near 2006 and 2007 levels, and arguably near the levels we’ve seen since 2001.

For 30-year bonds, everything is essentially back to ‘normal’, expecting moderate inflation rates and the Fed to raise interest rates back to the previously expected long-term run rate. Summed up in a sentence: We’re riding the same long-term road as before, even if it’s a bit bumpy at times. There are neither long-term deflation nor hyper-inflationary expectations baked into 30-year bonds.

(LInk via Abnormal Returns)
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