The Bull Market in Bonds is NOT Over

28.12.17
Written by Richard Hokenson 

Ever since we (Hokenson & Company) elaborated the ‘Race to Zero' forecast in 1992, there have been countless proclamations stating that the secular downward trend in long-term interest rates was at an end. The most recent assertion is that passage of the U.S. tax bill will result in an imminent reversal in the bond bull market. The reality is that today’s ultra-low interest rate world only appears to be unusual if one takes a truncated view of history, i.e. only looking at developments since the 1950s.

Extending the starting point reveals a secular downward trend in U.S. long-term interest rates since 1798 that was interrupted by the maturation of the American post-war baby boom (see Chart 1). As we have stated numerous times in the past, the origins of that uptick in long-term interest rates was demographically driven – too many positive demand shocks from having too many young. The smaller generations following the baby boom in combination with an ageing more productive baby boom have re-established structural disinflation. It is conceivable that the blossoming global economic recovery might create an uptick but we would again stress the point that this would only be a cyclical upturn. The 'surprise' will be the reappearance of ultra-low interest rates.

 

 

This update was researched and written by Richard Hokenson. Data is as of 28 December 2017

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