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
The state of the global economy in 2020
13/09/2020

Last Wednesday, I gave the opening presentation for the ICIS PET Conference and looked at whether th...

Read
Reality dawns for business as No Deal Brexit approaches
06/09/2020

I warned before the June 2016 Brexit referendum that Brexit was all about politics, and Boris Johnso...

Read
Global chemical industry – key trends for success in today’s New Normal
02/08/2020

The chemical industry is the best leading indicator for the global economy. On Friday, I had the pri...

Read
Oil prices signal potential end to the V-shaped recovery myth
26/07/2020

Oil prices have moved into another ‘flag shape’ – which previously provided critic...

Read
Bankruptcies now the key risk as hopes for V-shaped recovery disappear
19/07/2020

Governments, financial markets and central banks all originally assumed the Covid-19 pandemic would ...

Read
Merkel warns of need to prepare for No Deal Brexit
05/07/2020

Most people missed the fact that last Tuesday was the last possible date to delay the UK’s exi...

Read
World moves from Denial to Anger, as the Paradigm of Loss moves forward
07/06/2020

I have been warning about the Covid-19 risk since early February, and in April suggested here that: ...

Read
The New Normal for global industry
31/05/2020

The global chemical industry is the third largest sector in the world behind agriculture and energy,...

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