If you choose not to enable the macro that provides a dynamic display over time (look for the "Start" button in the upper right corner), you will have manual control over the progression across the century (in the lower left corner). Look for instructions in the lower right corner. Three versions are provided depending upon your screen resolution (a larger size is recommended).

The fundamental relationship that is widely accepted today—that interest rates, particularly long-term rates, are directly affected by the rate of inflation—was not apparent during the first two-thirds of the past century.  This creates significant implications for the use of historical interest rates prior to the 1960's...or casts doubts to the relationship between interest rates and inflation.

In the past 40 years (with a two-month exception in early 1998, one week in April 2006, and Sept to Nov 2006), there has not been a 6-month period during which interest rates did not change at least 50 basis points—interest rates are much more volatile than most investors realize.  As history demonstrates, almost half of the time, interest rates change by more than 1.5% (and over 25% in percentage terms) over all 6-month periods.  This set of charts and statistics (a total of five pages) presents the data and a boundary guideline that can be expected to be crossed over the next six months.

The 2003 rise in the interest rate on 10-Year Treasuries (and related decline in bond prices) was dramatic. This historical analysis presents the change in the yield on the 10-Year Treasury within subsequent 8-week periods. The magnitude of the move in percentage terms is much more significant than the change in absolute terms.  Although there have been a number of 1% (100 basis point) changes in interest rates, this was the first change in rates of more than 30% of the starting interest rate level.  Since then, the decline in volatility across many financial markets has occurred in the Treasury Note market too.

The upcoming interest rate increases by the Fed should preserve stock market P/Es, not impair them...unless they're not successful in controlling inflation or drive us back into deflation. The increases in short-term rates are intended to contain inflation, the driver of P/Es and long-term interest rates, at levels of price stability. The implication of a 100 basis point (1%) yield spread is that the interest rate that affects stocks, the long-term rate, is likely to stay relatively low.  Why?  This analysis presents the answer and the likely reason that PIMCO is buying bonds.

The often cited chart, by Bill Gross and others, reflecting a surge in Total Credit Market Debt as a % of GDP is distorted by a number of factors. One of the most significant reasons is that many families have substituted mortgage payments for rents and, without changing their costs, increased the debt ratio. Ironically, the shift built significant equity value. Further, when the long-term series is viewed on a standard logarithmic scale to show percentage gains over time, the chart becomes much less dramatic. On a real basis, adjusting for inflation, the rate of growth has been relatively constant over the past 50 years.

Is 4% on the 10-year Treasury bond high, low, or just about right?  The Fed appears now--and may explicitly state soon--to be targeting inflation between 1% and 2%. By adding a 2% inflation-risk spread, 4% or lower may be just about right for the 20-year bond. As for the 10-year Treasury bond, we may soon see a yield that starts with a "3".