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What Happens After Historic Rate Declines?

What Happens After Historic Rate Declines?

June 17, 2020

The yield on the 10-year Treasury yield has been broadly declining since the early 1980s, when it peaked over 15%, but even over that long decline there have been intermittent periods of rising rates. In fact, after periods of especially large decline there has usually been an extended reversal over the next 1-2 years.

“The trend has been toward lower interest rates for almost 40 years, and over that period many have expected higher rates, only to be disappointed time and time again,” said LPL Financial Senior Market Strategist Ryan Detrick.

But there have been exceptions. Using quarter-end data, we looked at all the rolling one-year periods in which the 10-year Treasury yield fell more than 1.5%. As shown in the LPL Chart of the Day, this has occurred seven times since 1990, including the year ending on March 31.

View enlarged chart.

Of the six prior occurrences since 1990, the 10-year Treasury yield was higher a year later all six times, averaging an increase of 0.92%, and also higher a year-and-a-half later, averaging an increase of 1.09%. That historical pattern, together with our expectation of an economic recovery over the second half of the year, support our forecast of the 10-year Treasury yield trending higher over the remainder of the year. However, the size of the move may be limited by the Federal Reserve keeping short-term rates low, limited inflationary pressure, and attractive yields relative to other developed markets.



This material is for general information only and is not intended to provide specific advice or recommendations for any individual. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. Investing involves risks including possible loss of principal. Any economic forecasts set forth may not develop as predicted and are subject to change.

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This Research material was prepared by LPL Financial, LLC.

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