Historical bond rates

Let us look at the historical bond rates for US bonds, what yield had to be paid in previous times and today. Below you can see the bond yield rates from 1925 to 2009, for the US bonds and Australian ones. They look very similar, which comes from the fact that the US as leading economic power is involved or affected by all global economic events.

You can see the maximum of the historical bond rates in the 1980 crisis, with yields higher then 14% per year! If you look at the gold bubble this was a time of strong inflation, and the high interest rates where part of stopping that. After the inflation trend was banished, the yield came back to normal rates. Compared to this timescale, todays bond rates seem very low.

historical US bond yields

The historical bond rates for australia show a similar pattern, however their yield is a bit higher, about 1.4% in average.

Now if we look at the historical bond rates for the UK, Min/Max/Avg are not far off. However the peak here was in the mid 70s, prior to one of the US bonds.

UK historic bond rates

We can see this more clearly if we put all graphs in one comparison, we see how the UK bond rates spiked before the Australian ones, and after these the US yields spiked.

Comparison of historical bond rates

Historical bond rates vs CPI

Lets look at the inflation which can be represented in a way by the CPI. It can been seen that the WW2 lead to major price increases whereas bond rates remained low. The CPI also shows the inflation in recent times spiked last at 1980. Interestingly the inflation drops rather fast at about 1982, while the bond rates stay high. Today the inflation in US is at about average level.

consumer price index 1925-2009

Now what we if we substract the CPI from our historical bond rate data? This is depicted below (for US bonds). The inflation was much greater then the bond yield rates in the time of 1940 - 1950 and for the opposite the yields were much greater then the CPI in the 1980s. So as an average we get a return of 2.09% after inflation. If we look at the recent history, it is more like 3%.

bond rates substracted by cpi

Now we can also put this CPI data to the historic bond rate comparison we already had:

Comparison of CPI and historic bondrates.

We see the extreme flucuations in the CPI had nearly no impact on the bond rates up to 1950. After that the CPI seems to rise with the US bond rates, but falls much sooner.

Historical bond yield vs current yield

So you see in retrospect that the historical bond yield is pretty low at the moment. It is unclear if the effects of the finance crisis (or the governments reactions) will have an impact on the cpi inflation rate.The financial crisis actually took 'money out', it caused a deflation which made the price of stocks, gold and other assets fall in 2008. The governments increase in money spending could create a rise in money supply, which could be seen in the CPI and also lead to rising bond yields.