Bond markets are returning to normal

A lot of people are worried about the level of United States interest rates.

- NIR KAISSAR

"I think we should be afraid of the bond market," billionaire investor Ray Dalio said last week. To other observers, the bond market is "barfing," "shaking Wall Street," "sending a warning to Congress," "worrying that something may be breaking beneath the surface" or just plain "breaking."

I don't see what all the fuss is about.

There is nothing unusual about the current level of interest rates or their recent movement. If anything, this is a yawningly normal interest rate environment.

For perspective, the benchmark 10-year Treasury yield, at 4.5 per cent, is more than a percentage point lower than its historical average of 5.6 per cent since the 1950s. Even if you remove the period from 1980 to 1985 in which the 10-year yield was persistently above 10 per cent, that historical average declines only modestly to 5.1 per cent, still well above the current yield.

Nor is the recent interest rate volatility all that unusual. Yes, the 10-year yield has bounced around a bunch since the White House's tariff announcement on April 2. But similar—and always temporary—spikes in volatility were common throughout the 1970s and 1980s and have occurred regularly during every decade since then, including the current one.