Ten Year Yields

The years run too short and the days too fast
The things you lean on are the things that don't last
Well it's just now and then my line gets cast
Into these time passages
--Al Stewart

Last time we suggested that interest rates are among the most important prices in markets. Of the myriad interest rates shaping markets on an everyday basis, there is one in particular that you'll want to pay attention to: the interest rate (or yield) on ten year US Treasury bonds. People often refer to this interest rate as '10 year yields.'

Ten year yields are important because they influence a goodly share of other interest rates on the planet. Interest rates on mortgages, car loans, student loans, and credit card balances are all linked to 10 year yields. Why this is so is largely beyond the scope of this post. Let's just say that America's status as the world's premier borrower carries lots of weight when it comes to setting interest rates.

Smart investors tend to know where 10 year yields currently are and how they've been trending. So where are they currently? The most popular data series of 10 year yields is known as the TNX, which for some strange reason requires you to divide TNX values by 10 to get the actual interest rate. First, let's look how 10 year yields have been behaving on a daily basis for the past few months:

Note that the most recent value of TNX reported on the graph sits at 24.67. When we divide by ten, this translates into a 10 year yield of about 2.5%. Note also that 10 year yields have been in a downtrend since late last year. In fact, they have fallen 20% or so since November.

Now, let's elongate the time horizon and examine the past few years on a weekly basis:

Note that prior to the recent downtrend, 10 year yields had been in a multi-year uptrend during which time yields more than doubled. The low point in mid 2016 of about 1.4% was an important one because it constituted an all time low in 10 year yields.

One more time frame--the big picture. Going back as far as my charting app permits, here's a graph of monthly 10 year yields since 1980:

The general direction is obvious. Ten year yields have been grinding lower from highs above 15% (!) in the early 1980s to present levels over the course of nearly 40 years. That maths out to an 80-90% decline. Now that's a downtrend!

In true, unhampered markets, such a pattern is unlikely. Interest rates should fluctuate with such factors as supply and demand for savings and people's preference for living larger in the here and now.

This prompts several important questions. If interests rates haven't been free to fluctuate naturally, then who/what has been forcing them lower over time? What are the possible motivations for wanting to force them lower? And, what are the potential adverse consequences of manipulating interest rates lower for such an extended period of time?

We'll surely discuss these questions going forward. Meanwhile, try to maintain a regular sense of the levels and trends of 10 year yields. This will help you as an investor.