UK bond yields return to historical levels

Economic growth

SHARE THIS STORY

Consols Jan13.pngAre you worried about the future direction of interest rates, and what they may mean for your pension, your family and your company?

Then the chart above, showing 300 years of UK government bond yields, may just be helpful. It will probably also surprise you, as it contradicts the opinions of most ‘expert commentators’. These mostly argue that western government bond yields are in a massive ‘bubble’ and are sure to soon increase, perhaps dramatically.

The chart is thus a demonstration of the wisdom of the British statesman Winston Churchill, who argued that “The farther back you can look, the farther forward you are likely to see”.

It is based on official Bank of England data, and shows the yields paid on government debt (known as Consols) since 1703. This includes two world wars and several European wars, as well as major booms and depressions. Through it all, yields have averaged just 4.49%, very close to current levels – which average 4.61% since 2000.

Interestingly, for those who follow the blog’s argument about the importance of demographics for financial markets, there was just one 50-year period when the averages moved higher. This was between 1950-99 (red highlight). Rates then shot up across the western world, as demand increased with the arrival of the BabyBoomer generation. The peak was seen in 1970-90 with rates averaging 11.1%, more than twice the historical level.

Today, of course, this surge in demand is being replaced by a decline. Deflation, not inflation, is now the key risk for the economy. More than a third of the western population is now over 50-years old, when spending reduces quite sharply as people begin to prepare for retirement.

The ‘experts’ are thus likely to be completely wrong in their forecast, unless the risk of default increases. Their mistake is to assume their personal experience since the 1970s represents ‘normal’. They thus ignore Churchill’s great insight on the value of a historical perspective.

Update. New FT video. The Financial Times has produced an excellent new video today (Friday). Norma Cohen, demography correspondent, uses the above chart to ask the question “What is Normal?”. Please click here to view the interview.

PREVIOUS POST

"Cheap, convenient mobility" the new trend for US auto markets

30/01/2013

The US auto market seems to be at the start of a 3rd period of major change sinc...

Learn more
NEXT POST

Boom/Gloom Index slips as financial markets jump

02/02/2013

January was, as usual, a good month for the optimists in the financial community...

Learn more
More posts
G7 births hit new record low, below Depression level in 1933
14/07/2019

If a country doesn’t have any babies, then in time it won’t have an economy. But that...

Read
From subprime to stimulus…and now social division
06/07/2019

The blog has now been running for 12 years since the first post was written from Thailand at the end...

Read
Resilience amidst headwinds is key for H2
30/06/2019

Resilience is set to become the key issue as we look forward to H2, as I note in a new analysis for ...

Read
Perennials set to defeat Fed’s attempt to maintain the stock market rally as deflation looms
23/06/2019

Never let reality get in the way of a good theory. That’s been the policy of western central b...

Read
Europe’s auto sector suffers as Dieselgate and China’s downturn hit sales
16/06/2019

Trade wars, Dieselgate and recession risk are having a major impact on the European auto industry, a...

Read
2019 Global Outlook – a mid-year update: ACS webinar on Thursday
04/06/2019

There will be no shortage of important topics to discuss on Thursday, at my regular Chemistry and t...

Read
US-China trade war confirms political risk is now a key factor for companies and the economy
12/05/2019

There are few real surprises in life, and President Trump’s decision to launch a full-scale tr...

Read
Uber’s $91bn IPO marks the top for today’s debt-fuelled stock markets
28/04/2019

Uber’s IPO next month is set to effectively “ring the bell” at the top of the post...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more