Treasury Yields: A Long-Term Perspective

This article takes a look at a long-term perspective on Treasury yields as of the July 31, 2023 close. The chart below shows the 10-year constant-maturity yield since 1962 along with the Fed funds rate (FFR) and inflation. The range has been astonishing. The stagflation that set in after the 1973 oil embargo finally ended after Paul Volcker raised the FFR to 20.06%.

As of July 31, 2023, the 10-year note was 345 basis points above its historic closing low of 0.52% reached on August 4, 2020.

Inflation, 10-Year Treasury Yields, and the Federal Funds Rate

Now let’s overlay the S&P 500 to see the historical pattern of equities versus Treasury securities. This is a nominal chart, which significantly distorted the real value of both yields and equity prices.

S&P 500, 10-Year Treasury Yields and FFR

Here’s the same chart with the S&P 500 and 10-year yields adjusted for inflation using the CPI. The impact of stagflation becomes much clearer. We can better understand the severity of the decline in equities from the mid-1960s to the bottom in 1982. We can also see why high yields can be deceptive in periods of double-digit inflation.

Real S&P 500, 10 Year Treasury Yields, and FFR