The 10% Treasury Matures Tomorrow

When yields were double digits - 10% and above - savers thought they were investors.  That perception and understanding was commonly held back in the 1980's.

10% on a U.S. Treasury bond was a terrific return that savers confidently received without the fear of risk assumed if stocks were purchased instead.

Today is different.  30 year treasury bonds yield about 3%.  Wow!  Where did that 7% additional return go?  Ask our government 'leaders' and those nice people at the Federal Reserve: what have you done for me lately?

Our economy and our markets have punished both savers and income investors.  The educated guess is that at some point interest rates will move up.

If so, if rates move noticeably up, how far up will long rates move?  And if so, how quickly?

Will we ever see 10% again?  

What is important to remember is that 30 years ago, investors did not trust long bonds at 9% or 10% because they could get similar rates at shorter maturities.

That was the most important lesson I ever learned in the industry.  PB
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From Bloomberg.com:

The last Treasury bond with a coupon above 10 percent is older than some government-debt traders.

It turns 30 tomorrow.

The bond was issued on Aug. 15, 1985, and is one of just five Treasury bonds left with coupons of 9 percent or higher.

All of them mature in the next three years.

And as the ranks of high-coupon government bonds have gotten smaller, so has the number of traders and analysts who were on Wall Street desks when high yields and worries about rising prices were the norm.

“Talking to people who have been in the market for 20 or 30 years is interesting, because they did see double-digit inflation,” says Edward Acton, a U.S. government-bond strategist at RBS Securities, who turned 23 two months ago.

“It seems almost alien...”

The newest 30-year Treasury note sold by the U.S. government has a coupon of 2.875 percent. Those ultra-low yields and regulatory pressure have crimped profitability for large global banks.

And that has pushed banks toward hiring the younger cadre of bond traders, a trend that consulting-firm Greenwich Associates calls “juniorization.”

“You’ve got a whole bunch of people who weren’t even alive in ’85 and haven’t known anything but yields going down,” says Neil Bouhan, an interest-rate strategist with BMO Capital Markets in Chicago.

Bouhan was 5 years old when the bond was issued.
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Link: http://www.bloomberg.com/news/articles/2015-08-14/the-10-treasury-that-s-older-than-a-lot-of-traders-matures-tomorrow