As of the close of business on Tuesday, long-term US Treasury bonds were yielding 2.83%.
The long-term Treasury composite rate is a combination of bonds that aren’t due or callable within 10 years.
This rate is historically low.
And if you mentioned that yields are “historically low” to most folks on Wall Street, they would likely say that they know that. But here’s some context.
This chart, via Credit Suisse, shows the long-term composite rate on US Treasury bonds dating back to 1800.
Only one other time — for about two decades following the Great Depression and through the post-World War II era — has the rate on long-term debt been so low.
Over at Bloomberg on Wednesday, Matt Boesler has a great piece breaking down the problem these long-term rates pose for the Federal Reserve.
Last month, the Federal Reserve ended its quantitative easing program, setting the stage for the Fed to begin tightening monetary conditions, though the market doesn’t expect the Fed to raise rates for another 10 months.
But as Boesler notes, banks finance long-term loans with short-term debt and so if long-term rates remain low, but short-term rates rise as the Fed begins raising rates, the yield curve could become inverted, a condition that typically occurs ahead of a recession.
Boesler also writes that the the problem of perpetually low long-term rates plagued the Fed in the run-up to the financial crisis when Alan Greenspan was chairman.
And shades of 2004-2006 are not the kinds of comparisons that investors are going to want to hear, especially as the stock market has more than tripled in just over 5 years, a run that has had many asking if the market has gone too far, too fast.
Time will tell.