This article looks at the 10-year Treasury yield's historical trends since 1962, exploring its relationship with key economic indicators like the Fed Funds Rate (FFR), inflation, and the S&P 500.
The 10-year Treasury yield has experienced dramatic fluctuations, ranging from a peak of 15.68% in October 1981, during the height of the Volcker era, to a historic low of 0.55% in August 2020, amidst the economic uncertainty of the pandemic. As of March 31, 2025, the weekly average stood at 4.33%.
The stagflation crisis of the late 1970s and early 1980s demanded drastic measures. Under the leadership of Paul Volcker, the Federal Reserve pushed the FFR to a historic high of 20.06% in January 1981. Nine months later, the 10-year yield's weekly average hit a peak of 15.68% in October. This aggressive tightening of monetary policy was instrumental in curbing runaway inflation, albeit at the cost of a significant economic slowdown.
In stark contrast, the FFR was driven to near-zero levels in the aftermath of the 2008 financial crisis and again during the economic turmoil of the 2020 pandemic. Specifically, the FFR reached a record low of approximately 0.04% in May 2020. A few months later, the 10-year yield weekly average fell to a historic low of 0.55% in August. These periods of ultra-low interest rates aimed to stimulate borrowing, investment, and economic recovery.
What happened next was inflation reached its highest levels since the stagflation crisis previously mentioned. In response, the Fed began raising rates to fight inflation...some would argue their efforts were too late. From May 2022 to August 2023, the Fed quickly raised the FFR to its highest level in over 20 years. Meanwhile, the 10-year yield moved in similar fashion. The Fed held its rate steady for just over a year as inflation cooled from its 2022 peak. In September 2024, they began their rate cutting cycle. However, interestingly, while the FFR declined during the back end of 2024, the 10-year yield moved in the opposite direction. At the same time, inflation proved sticky and many continue to worry that it has stalled out above the Fed’s 2% target.
At the end of March, the 10-year yield weekly average stood at 4.33% while inflation was at 2.8%. The Fed is expected to continue cutting rates this year, with the market currently pricing in three 25 basis point cuts in 2025 starting at the June meeting as per the CMEFedWatchTool.
Treasuries vs. Equities
In our next chart, the S&P 500 is overlaid with the 10-year yield’s weekly average and the Fed Funds Rate. Generally, equities and treasuries tend to move in opposite directions. When one goes up; the other goes down. However, that’s not always the case. During inflationary periods, like the past few years, both move in tandem due to the impact of higher interest rates on corporate profits and bond prices. The initial chart presents nominal values, meaning it doesn't account for inflation. This can create a misleading picture of the actual purchasing power of yields and equity returns.
