The yield on the U.S. 10-year Treasury note has surged past 5%, reaching its highest level since 2007. However, rates exceeding this mark were not uncommon 45 years ago.
On September 15, the yield on the 10-year Treasury note rose to 5.03% during trading. Concerns over inflation due to a recent spike in international oil prices, expectations of further interest rate hikes by the Federal Reserve, and the burden of U.S. fiscal and Treasury supply are driving long-term rates higher.
Historically, a 5% yield is not considered extreme. According to the Federal Reserve Bank of St. Louis (FRED), the average annual yield on the 10-year Treasury note jumped from 11.43% in 1980 to 13.92% in 1981. Although it began to decline afterward, it remained high, recording 13.01% in 1982.
This period coincided with aggressive tightening measures by then-Federal Reserve Chairman Paul Volcker, aimed at combating high inflation that had persisted since the 1970s. During this time, the federal funds rate approached 20% by late 1980 and mid-1981, while the average monthly yield on the 10-year note exceeded 15% in the fall of 1981. As inflation pressures eased, long-term rates began to decline.
Over the long term, interest rates have shown a downward trend. The average yield on the 10-year note fell to 8.55% in 1990 and 6.03% in 2000. Following the 2008 financial crisis, the Federal Reserve's zero-interest-rate policy and large-scale asset purchases drove the yield down to 1.80% by 2012. The average yield dropped to 0.89% in 2020 amid the COVID-19 pandemic, with some analysts suggesting that the Fed's long-term bond purchases contributed to this decline.
Since the pandemic, the landscape has changed. Supply chain disruptions, soaring prices, and the Fed's tightening measures have led to an increase in the average yield on the 10-year note, which rose to 2.95% in 2022, 3.96% in 2023, and is projected to reach 4.21% in 2024, with last year's average at 4.29%. Recently, high oil prices have reignited concerns over inflation and interest rate hikes, pushing the yield above 5%.
Comparing the interest rates of the 1980s to those of today is complex. Over decades of declining rates and a prolonged period of low interest, the U.S. debt situation has changed significantly.
According to FRED, public debt held by the federal government was 24.76% of GDP in the first quarter of 1981, but it has risen to 98.71% in the first quarter of this year. The longer high rates persist, the greater the burden of refinancing maturing Treasury bonds at higher rates.
The Congressional Budget Office (CBO) projects that the federal government's net interest payments will reach approximately $1 trillion this year, accounting for 3.3% of GDP, and could rise to $2.1 trillion, or 4.6% of GDP, by 2036. The 10-year yield also impacts borrowing costs across the U.S. economy, including mortgages, auto loans, and corporate bonds.
While a 5% yield is not historically unusual, the significant increase in federal debt and the financial market's long-standing familiarity with low rates mean that the implications of this rate today differ markedly from those in the past.
* This article has been translated by AI.
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