Just like today, long-term borrowing rates were grabbing headlines back in 1981.
On September 9, 1981 it wasn’t even front page news as US 30-year bond yields hit 15%. In fact, it wasn’t even front page business news as it was relegated to page 12 in Section D.
“Long-term Treasury bond yields rose briefly to 15 percent yesterday, but even that record yield for a 30-year bond backed by the United States Government was not enough to attract much investor buying.
This week the Government market enjoys a breather from last week’s frantic pace when there was a Treasury bill auction every day of the week. The lull will be temporary, however, because the Treasury is expected to announce this week plans to sell two-and four-year notes later this month.
”It’s a vicious circle,” one trader said, ”since the lack of investor demand deepens the gloom among the dealers, while dealers’ forecasts of higher rates in the future encourage investors to stay out of the market.”
An institutional salesman at another firm added, ”There are fewer and fewer participants in the market, and customers are tending to buy only at the time of Treasury auctions.” Unfortunately for those who have predicted lower interest rates, the volume of Treasury financing combined with that of corporations is said to be large enough to preclude a move to lower rates in the near future.”
The story went on to highlight ‘intense US borrowing” which at the time was $33 billion in the quarter. For reference, the US will offer up $49 billion in 5-year notes alone this week as part of monthly sales.
In any case, those who ignored the noise and bought 30-year bonds that day got the deal of a lifetime. 15% nominal per year and 30-years of restful sleep.
That said, it’s easy in hindsight. Look at the left side of this chart and notice how quickly rates from 9% to 15%. Prudent investors with confidence in the Fed surely thought they were getting a great deal at 9% only to see the market blow out over the next two years.
US 30s quarterly