A Noteworthy All-Time Record

Author: Rowan Williams-Short (Head: Fixed Interest)

On the 4th March 2020 the US 10-year Treasury yield traded below 1%.

We have data since 1871, and this is an all-time record. For several years after the collapse of Lehman Brothers (15 Sep 2008) and the many subsequent varieties of “QE”, we were deluged by calls for the “normalization of the US yield curve”. Those calls fell silent a couple of years ago, and now look utterly foolish.

By my estimate, had SA not begun to surrender fiscal prudence around 2010, our 10-year yield would now have been about 7.50%, rather than 9.10%. That in turn would have massively reduced SA’s debt-servicing costs, which would have lowered debt:GDP as well as the deficit, which would have brought yields even lower. A fantastic opportunity squandered. Seen differently, a bad decoupling that began with the dismissal of Minister Nene and has become even worse over the past 18 months:

Alan Paton would have immediately had a good description of this.