Nice thirty year chart showing the net change in interest rates, via the 30-year treasury bond.

Given the high (inverse) correlation between interest rates and stock prices, the 1982 to 2000 bull market is much less about productivity, ideology, or deficit reduction — it was about falling interest rates, plain & simple.
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30 Year Treasury Bond, 1979 – 2009

30-year-bond
via Yahoo! Finance

>

Hat tip Paul

Category: Investing, Markets

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

39 Responses to “Thirty years of the 30-Year”

  1. drollere says:

    we need a little red star at 1987 labeled “Gordon Gekko: greed is good.”

  2. Byno says:

    Well, given the approaching-30-year bull market in bonds, if falling interest rates drove higher stock prices, shouldn’t a bear market in bonds keep a lid on the S&P 500? If the 70′s are a template, the next decade is going to suck.

  3. Bruce in Tn says:

    Hmmm…bonds…

    oops!

    http://www.marketwatch.com/story/fitch-lowers-californias-bond-rating-outlook

    Fitch lowers California’s bond rating outlook

    SAN FRANCISCO (MarketWatch) — Fitch Ratings said late Friday it lowered its ratings outlook on the State of California to negative from stable……

    …I just don’t think Geithner/Bernanke can do it…..rates look like that they can’t be held down…too much risk by the buyers other than the US government…

  4. SINGER says:

    Just like the recent rally in stocks is the REFLATION trade… I just can’t believe that this is the worst that its going to get… If that’s so then this wasn’t that bad…

    This is something I think about:

    If the DOW went from 1200 to 14500 during 1985 to 2007 and the standard of living / purchasing power of money (i.e. two income households, debt, etc.) went down during that period, then its possible that through massive liquidity, that in 2020, the DOW will be 35,000, but we will be worse off than we are now…

    If you are a government, this is how you screw your creditors and less than savvy citizens…

    Unless the US starts manufacturing something soon that is very profitable, I don’t see any other alternative… That’s why Bernanke is here and that’s why M3 is gone, etc…

  5. DL says:

    “Given the high (inverse) correlation between interest rates and stock prices, the 1982 to 2000 bull market [was not] about … deficit reduction”.

    Quite true. But it was (apart from falling interest rates) very much about deficit INCREASE, or more accurately about debt increase at the federal level, and at the consumer level. However, going forward, higher and higher debt levels will be required to produce each unit of economic growth.

  6. DL says:

    Bruce in Tn @ 12:23

    “Fitch lowers California’s bond rating outlook” ; “…..rates look like that they can’t be held down…”

    As for the state of California, Obama may decide to insure all their bonds, which would be rather inconvenient for the rest of us in the event of a default.

  7. km4 says:

    Yes it’s all about falling interest rates over past 30 yrs because financial engineering and consumer spending ( makes up 70% of GDP ) are key drivers for the debt laden ‘bubble’ US economy.

    Yet Obama and his Wall St bought and paid for economic team have put all their chips on the Banking Oligarchs !

    This will not end well….

  8. Steve Barry says:

    Major question…how did rates fall while we ammassed so much debt and leveraged it to the hilt? Could have been a feedback loop…buy foreign goods…foreigners plow money into treasuries so dollar won’t collapse, so we can buy more goods…repeat until global trade collapses.

  9. Mannwich says:

    But surely (don’t call me Shirley!) there has been virtually no inflation during this time period otherwise penned as “The Great Moderation” by our modern day astrologer/economists. Well, excluding essentials like food, energy and homes, of course. Nothing to see there. Move along please.

    Gorgeous weekend here in the Twin Cities. A reminder of why it is we stay here and grind out the long, bitter cold winters.

  10. cvienne says:

    When the crisis effectively “hit the fan” last fall, it was quite obvious at the time that there were two choices:

    1. Inflation & cross your fingers, or;
    2. Deflation/Depression

    Naturally, BB was itching for the chance to do his little science lab experiment (and prove that his doctorate thesis was WORTH something more than the paper it was printed on)…And naturally, the new administration was itching for ANY solution which could offer them “cover” for social engineering…

    I wonder if there are ANY ODDS WHATSOEVER of doing a 180 degree flip-flop at this point?

    That is…DEPRESSION is a terrible thing until you finally come to realize that there is an “other side” to it…INFLATION just puts you down a road that never ends…

  11. cvienne says:

    From 1987 on…Greenspan continually justified the reason to keep interest rates low (and LOWER based on the graph) was allowed by the PRODUCTIVITY MIRACLE…

    I guess it’s kind of easy to have a “productivity miracle” when you don’t really have to produce anything!

  12. Marcus Aurelius says:

    Social engineering (more accurately, transformative social change) is a byproduct of economic Depression — be it caused by inflation or deflation (Depression can be caused by/accompany either). The new administration was handed the keys/steering wheel to the car (country) immediately after the wheels left the pavement. There is no textbook reaction for what to do in the event a car or an economy is driven off a cliff.

  13. call me ahab says:

    DL-

    backstopping CA bonds would be a bad move and would keep them from making the necessary choices to keep from defaulting-

    CA voters have spoken and have rejected higher taxes- so there is only one way out- cut expenditures-

    re USG- they are trying to put a floor under all asset classes- forcing down interest rates, tax credits for home purchases, unprecedented increases in FHA, Fannie, Freddie loan limits, 3.5% down loans to $729,750, monetizing the tax credit so it can be used as a down payment, etc, etc, etc AND home prices continue to decline- also

    my feeling is their is also an unwritten requirement for market players who were recipients of TARP to not short and set a floor for share prices-

    thus the bizarre market action we have been seeing-

    this country has no future unless we can deflate- it is the only solution- clear out the dead wood so new growth has a chance to take hold-

    we cannot continue down the same road- it is a road to nowhere- it does not bring happiness-

    only debt and mindless consumption to fill the void of a people that have lost their soul-

    maybe we should look to Bhutan-

    http://www.sepiamutiny.com/sepia/archives/002317.html

  14. cvienne says:

    @MA

    I’ve been reading this blog for as long as I can remember…It seems to me the following:

    Most of the people who post on this site have realized for QUITE AWHILE what was going to happen to our economy (vis-a-vis, housing collapse, deleveraging, etc.) a LONG TIME BEFORE one arrogant Senator even began “campaigning” for office…

    Therefore: I simply DO NOT buy the EXCUSE that any Administration INHERITED a mess…

    The “mess” did not come out of the blue with the Lehman collapse, it had has been festering for 30 years now, has been WELL DOCUMENTED, and has transited Administrations representing both political factions (as many on this blog have made reference to in various ways)…

    If you had an effing CLUE to begin with…you’d have understood (as every living soul on this blog has understood) what you were stepping into…Not just in the past couple of months, but literally 3-4 years ago…before you even had wet dreams about becoming President!

    So I don’t want to hear about any lack of TEXTBOOK reaction to things…

    It’s the most important job on the planet, and YOU SAID YOU COULD HANDLE IT…You accepted the responsibility to RESPONSIBLY guide many millions of citizens to a better future…

    Polls of the day are one thing…But history is going to hold you to a much higher standard!

    In the meantime only one thing is clear…Some have FAITH in you (because they’d rather to have someone ‘engineer’ their lives) , OTHERS DON’T (because they are capable of thinking for themselves and therefore don’t require engineering)…

    It’d be a good idea to get intouch with that thought as your job is to represent EVERY CITIZEN, not just the ones who voted for you…

  15. Wes Schott says:

    it seems to me that inflation last year was hotting up and it was reflected in consumer prices – asset price inflation and “something” had to be done.

    debt bubble of the shadow banking system that Sir Alan of Bubbles helped facilitate was looking dodgy – highly leveraged banks with paper tied to shakier and shakier mortgages…Fan and Fred

    Bernanke did not want interest rates to rise because of the potential impact when mortgages resets

    so, with the help of Paulson (of Treaury and GS) they came up with a plan – they knew the highly levered hedgies were long commodities and short the banks and the USD – so they went after them to take the pressure off of the highly levered banks.

    quid pro quo – y’all can not be investment banks anymore – leverage will have to be reduced, and, you will ultimately be able to raise new equity, bailout money was needed to “facilitate”

    Good ol Uncle Fed

    now, did they know the severity of their actions? unintended consequences, moral hazard – hell no, it was too complex – just trying something and find out

  16. a guy called john says:

    Doesn’t that chart put the recent move in perspective? We are once again in the Low, Low, Low, Low-Rate World (as opposed to the Low, Low, Low, Low, Low, Low, Low-Rate World).

    All this inflation talk (and, man, it is Everywhere — like, lead stories in Business sections and pop business tv/radio, let alone freaks like Glenn Beck) (and especially after a holiday week) sure seems like the kind of coverage that occurs when it’s a good idea to hold your nose, close your eyes and go the other way.

  17. Marcus Aurelius says:

    cvienne:

    What people on this blog knew is immaterial. We all know that we knew it (same goes for MISH, CR, naked capitalism, and a hand full of other sites), and we all knew that no one else saw it coming. Recall the election campaign — nary a word was spoken about the economic mess that was clearly imminent to us, until the last month or so, when everybody knew something was wrong. Do you remember the economic meltdown being mentioned in any of the copious debates held prior to the final months of the campaigns? So, what you say is true of the current administration would have held true no matter who was elected (excepting maybe Dennis Kucinich and/or Ron Paul). Be that as it was, any/all of them would have “inherited” a mess. You simply cannot start the clock on our economic policies on the day Obama (or any other candidate) was (or would have been) inaugurated. Nor can you say, with any degree of certainty, what would happen should any alternative have been enacted.

    3-4 years ago? I don’t think anyone in the former administration (to say nothing of the candidates who would ultimately run for POTUS) saw much coming then — nor do I think they’d have changed a damned thing if they had (when the stated goal of your party is to destroy the government it was elected to administer, what more do you think they could have done to fulfill their mission?). Where were the CEO and his All-Star business/economic cabinet while the seeds for our predicament were being sown? (They were, of course, sowing the seeds).

    Don’t get me wrong — I do not like or agree with the economic policies of this administration, to date. OTOH, I don’t think I’d be really happy with any of the alternatives, either (if you’d like to do an exercise in theoretical alternatives and their outcomes, I’m open to it, but I don’t think a more acceptable economic outcome would result). remember this: The only tool the Republicans have is tax cuts, and I don’t think that tax cuts would help us much in this circumstance.

    What truly gets my goat about the Obama administration is its failure to make substantial changes to non-economic policies of the previous administration. Those policies include: spying on the citizenry, imprisonment without charge or trial (of anyone — citizen, or not), failure to end the wars in Iraq and Afghanistan, etc.

    What we now have can best be described as authoritarianism without the incompetence.

    As for the economy and economic policy, we are in free fall, and we don’t have a parachute. Nothing we do will truly matter much until we hit the ground, and what’s left, after that point, might only serve as fertilizer for what comes next.

  18. Wes Schott says:

    john@3:44 –

    that is so yesterday

    deflation now, inflation later

    the FED cannot reflate as fast as the shadow banking system that is crumbling

  19. cvienne says:

    @Wes Schott

    If Chapter 1 is as you describe (which is ‘plausible’ as any other conspiracy I’ve heard)…Then Chapter 2 is thus:

    - Those left standing (the famous 19) aren’t doing any LENDING right now (in fact, they’re doing the exact OPPOSITE)…The SBA is accelerating the payback of notes and credit card holders have recently been sent “cheaply produced” fliers which tell them that either they can accept a higher interest rate (for newer purchases), OR, if they decline, their credit line will be cancelled 7 they can only pay off their outstanding balance…This is all to get in AHEAD of the July 1st deadline brought about by BHO’s ‘sympatehtic’ plan to HELP consumers…

    - Instead, the famous 19, are bidding up equity & commodity prices into “bubble” territory…It’s a game of chicken…The BETTER TRADERS will win, who don’t trade as well, LOSE…So the famous 19 will probably be the famous 12 in the future…

    - While that is being played out, Joe Retail is getting sucked into the game…These will be the BIGGEST LOSERS…

    The END of Chapter 2 will result in Goldman Sachs, Morgan Stanley, Citi, Bank of America, Wells Fargo, & JPM surviving (and “financing” BHO’s re-election campaign for ’12)…The rest of the votes are already secured through the Chrysler & GM bankruptcies…(Do you REALLY think that if your overpaid job & benefits are being subsidized by the US taxpayer via the present Administration, that you are going to oppose that party in the next election?)…Congrats BHO, you just “bought” yourself the next election…

    Who are the losers?

    The rest of America…

    We’re looking at 20% unemployment when you suck the spending power away from average Americans and send it to bankers to pay for their past errors & a minority of union workers (who now effectively work for the US government)…

  20. Wes Schott says:

    @cv –

    conspiracy theory?

  21. cvienne says:

    @Wes

    To be quite honest, I don’t think any of these guys are ‘smart’ enough to concoct elaborate conspiracies…

    Instead, I think they’re greedy exploitative SOB’s who enrich themselves, then hire a staff of others to weave it all into a story…

    Fortunately for them, 99% of Americans are too gullible (and/or otherwise too occupied) to even recognize it.

    Take Franklin for instance, he’s all too happy to turn around, bend over, and say “thank you sir, may I have another”?

  22. cvienne says:

    @MA (3:46)

    If the wars in Iraq & Afghanistan were simply “W”‘s wars…In other words, if there were NO OTHER PURPOSE save for the ‘political’ whims of an ex- President…then we should be OUT of both places by now…

    It should be easy, right?

    Pull out…& meanwhile…just open the gates at GITMO…let ‘em all go free if you find no philosophical reason for detaining them…

    Just don’t campaign for two and a half years AGAINST these notions, then when the consequences for prolonging the ‘same old same old’ rest squarely on YOUR shoulders, simply get your ‘writers’ to come up with a few euphemisms to explain how the new policy is different…

    Come on…have some guts…it’s EASY to criticize for 30 months straight and have the “media” squarely in your camp…It’s A LOT HARDER to either have the guts to stand up to your assertations, OR, admit that the whole situation was actually a lot more DELICATE to begin with…

    I don’t care what you do…just be a MAN about it…

  23. royrogers says:

    ”Byno Says:
    May 31st, 2009 at 12:21 pm

    Well, given the approaching-30-year bull market in bonds, if falling interest rates drove higher stock prices, shouldn’t a bear market in bonds keep a lid on the S&P 500? If the 70’s are a template, the next decade is going to suck.”

    we can have hyperinflation and rising stock market in USD terms.

  24. Baille Beag says:

    Odd that Yahoo[insert exclamation point here] charts uses a log-scale on the x-axis here. Some kinda glitch.

  25. JustinTheSkeptic says:

    I just gotta say, “this does not end well” is right.

  26. Andy T says:

    BINGO!

    Indeed…this IS why this time may be different….How can you get a sustained new bull market with rates already near historical lows and looking very much “bottomed?” It seems like a very difficult road to travel…..

    One can almost feel the “between a rock and hard place” nature of the current circumstances….

    Big B. would LOVE to keep monetizing debt and dropping cash out of the skies, but alas the long bond market is not going along with this….the bond market is more powerful than the Federal Reserve and it’s clearly saying: “We’re losing trust in this debt. We don’t like what you’re doing.”

    Big B. is going to be forced into a cease and desist from this debt monetization and the US govt. will not be allowed to borrow to infinitely….this is what’s going to forestall any artificial recovery….

    As has been the case, there is only one path: The U.S. government must get its own house in order and deal with the huge costs associated with our shitty health care system, our globo-military police force, and the promises we’ve made in terms of social safety nets. And then we must allow the bad debt to be fully written off. Bondholders must eat the big shit-sandwich and start whacking debt. Asset values of all kind must continue to deflate and then the smart businesses/individuals with the cash can come in and start rebuilding this country.

  27. cvienne says:

    @Andy T

    The problem is, “helicopter Ben” has his term up for renewal in ’10…

    If he doesn’t stick with the program, BHO grabs Summers by the scruff and tosses him in there…

    I’m buying ‘ink’ futures as we speak…

  28. cvienne says:

    @Andy T

    The problem is, BB’s term is up in January ’10…

    BHO will just grab Summers by the scruff and toss him in there to keep the party rolling…

  29. Moss says:

    Lets see what Tim comes back from China with. I just read an article on Bloomberg that said the Chinese and other foreigners have increased their purchases of US Gov debt despite the drop in the dollar. It is all relative at this point. The Chinese really do not care that much about return on principal but care a lot about return of principal.

  30. thirdworld says:

    Steve Barry Says:

    May 31st, 2009 at 1:18 pm
    Major question…how did rates fall while we ammassed so much debt and leveraged it to the hilt? Could have been a feedback loop…buy foreign goods…foreigners plow money into treasuries so dollar won’t collapse, so we can buy more goods…repeat until global trade collapses.

    —–

    and continue to make credit easier and easier to get until one day that trend must reverse. tw

    cvienne Says:

    May 31st, 2009 at 2:00 pm
    When the crisis effectively “hit the fan” last fall, it was quite obvious at the time that there were two choices:

    1. Inflation & cross your fingers, or;
    2. Deflation/Depression

    Naturally, BB was itching for the chance to do his little science lab experiment (and prove that his doctorate thesis was WORTH something more than the paper it was printed on)…And naturally, the new administration was itching for ANY solution which could offer them “cover” for social engineering…

    I wonder if there are ANY ODDS WHATSOEVER of doing a 180 degree flip-flop at this point?

    That is…DEPRESSION is a terrible thing until you finally come to realize that there is an “other side” to it…INFLATION just puts you down a road that never ends…

    cvienne Says:

    May 31st, 2009 at 2:23 pm
    From 1987 on…Greenspan continually justified the reason to keep interest rates low (and LOWER based on the graph) was allowed by the PRODUCTIVITY MIRACLE…

    I guess it’s kind of easy to have a “productivity miracle” when you don’t really have to produce anything!

    ______

    how accurate! They want to save the institutions but not the citizen. Until the money reaches the lower levels of the economy we should see deflation in assets, but food could get expensive. tw

    Andy T Says:

    May 31st, 2009 at 5:56 pm
    BINGO!

    Indeed…this IS why this time may be different….How can you get a sustained new bull market with rates already near historical lows and looking very much “bottomed?” It seems like a very difficult road to travel…..

    One can almost feel the “between a rock and hard place” nature of the current circumstances….

    Big B. would LOVE to keep monetizing debt and dropping cash out of the skies, but alas the long bond market is not going along with this….the bond market is more powerful than the Federal Reserve and it’s clearly saying: “We’re losing trust in this debt. We don’t like what you’re doing.”

    Big B. is going to be forced into a cease and desist from this debt monetization and the US govt. will not be allowed to borrow to infinitely….this is what’s going to forestall any artificial recovery….

    _________

    when the choice is between the economy imploding and the streets exploding, the ability to “borrow to infinity” is available at the expense of the dollar collapsing. If other countries allow a dollar collapse, they will be in a worse recession/depression. If they all print money, asset prices will stabilize/increase. If C were to sell all the bonds, they would still own the dollars and would have to do something with them. If they sold the dollars, someone else would still own the dollars and have to do something with them. When everyone does not want to hold the dollars and tries to trade them away asap prices will rise. When prices rise many of the problems currently on the agenda due to the past financial and real estate implosion are not as bad. We should have never have been where we were, and not in defense of a fiat system, but it does offer flexibililty (perhaps unconstitionally.) tw

  31. km4 says:

    water boy’ Geithner is tasked with reassuring China that its massive US bond holdings are safe despite concerns.

    HA !!!….US economy carries about $20 trillion of excess debt.

    Until that debt is eliminated, the idea of a healthy boom is a mirage.

    A Treasury official acknowledged last Thursday that the budget deficit was “going to increase sharply” as a result of aggressive measures to jolt the economy from recession but added that once recovery was firmly established, “we are going to walk back these measures and the deficit will decrease.

    “In general, Treasury believes that by maintaining the most liquid debt markets in the world, by maintaining strong economic fundamentals, we will continue to attracts both domestic and international investment.”

    Geithner on his knees begging China please please please keep buying our debt because Obama and his Wall St bought and paid for economic team have put all their chips on the Banking Oligarchs !

    The Bilderberg Plan for 2009: Remaking the Global Political Economy
    http://bit.ly/

    One Bilderberger attendee said that, “the banks themselves don’t know the answer to when the bottom will be hit.” Everyone appeared to agree, “that the level of capital needed for the American banks may be considerably higher than the US government suggested through their recent stress tests.”

    Further, “someone from the IMF pointed out that its own study on historical recessions suggests that the US is only a third of the way through this current one; therefore economies expecting to recover with resurgence in demand from the US will have a long wait.” One attendee stated that, “Equity losses in 2008 were worse than those of 1929,” and that, “The next phase of the economic decline will also be worse than the ’30s, mostly because the US economy carries about $20 trillion of excess debt.

    Until that debt is eliminated, the idea of a healthy boom is a mirage.

    Geithner says more Tsing Tao please !

  32. some_guy_in_a_cube says:

    This chart tells me:

    1, All of that drama from the second half of last year was nothing more than a blip – price has now reverted to back trend.
    2, The trend from the 1982 top is still solidly in play.

  33. vic says:

    Yes, barry but WHY were interest rates falling? Productivity, ideology, and deficit reduction (lack thereof) were all factors

    ~~~

    BR: No, it was mostly Paul Volcker’s breaking the back of inflation by taking the Fed funds rate to 18% in 1980-81.

    Productivity gains were dramatically overstated, and deficit reduction didn’t occur until later 1990s . . .

  34. wunsacon says:

    >> If the wars in Iraq & Afghanistan were simply “W”’s wars…In other words, if there were NO OTHER PURPOSE save for the ‘political’ whims of an ex- President…then we should be OUT of both places by now…
    >> It should be easy, right?
    >> …
    >> Just don’t campaign for two and a half years AGAINST these notions, then when the consequences for prolonging the ’same old same old’ rest squarely on YOUR shoulders, simply get your ‘writers’ to come up with a few euphemisms to explain how the new policy is different…

    Cvienne, did BO say W invaded for political whims? I think that characterization and your others above here — limited to this subject — are way off.

    (No point me elaborating, because it’d be nothing you haven’t heard before — and implicitly rejected.)

  35. dead hobo says:

    RE Technical Analysis: This is the kind of chart I can get behind. The conclusion is obvious, although leverage ratios, idiotic regulation and idiotic regulators, and new ‘financial products’ play an even larger part in the continuing financial bubbles. Now add the full faith and credit of Uncle Stupid and watch the current bubble grow in record time.

  36. [...] Given all of this, it’s worth having a look at a chart posted by Barry Ritholtz, showing the yield on 30-years over the past 30 years. Observe and be calmed. [...]

  37. hr says:

    “Given the high (inverse) correlation between interest rates and stock prices, the 1982 to 2000 bull market is much less about productivity, ideology, or deficit reduction — it was about falling interest rates, plain & simple.”

    OK, then explain the continuing fall in interest rates until even now, and the bear market since 2000.

  38. jr says:

    hr Says,

    “OK, then explain the continuing fall in interest rates until even now, and the bear market since 2000.”

    Perhaps there is something to the distinction drawn by Austrian economists between 1) interest rates that fall because people save more and the supply of loanable funds increases and 2) artificially lowered interest rates when the supply of loanable funds is increased via Central Banks pumping new money into the banking system.

  39. [...] Thirty years of the 30-Year | The Big Picture [...]