Interest rates, mortgage rates, and inflation have been a big topic of conversation since the last quarter of 2021. We hear friends, colleagues, and news outlets speaking of rates on a regular basis these days. It can be confusing trying to decipher what is actually going on.
Below is a table with the history of the 10-year Treasury Yield, Mortgage Rates, and Inflation. We started from 1971 as Freddie Mac started to keep a reliable ledger of rates at this time.
You can see the 2023 rates are not that far off from the historical averages. Since 2000 until present, we have enjoyed low inflation and low mortgage rates. At the cost of high inflation, we have since seen a jump in the 10-year treasury as the Fed attempts to taper down inflation as fast as possible. While painful in the short-term, higher rates on bonds are more advantageous in the long-term.
As history suggests, we are not experiencing abnormally high rates with mortgages or inflation. Inflation seems to be coming back to the average of 4% in the beginning of 2023. One positive to take away, is that the portion of bond portfolios are now yielding a much larger return as opposed to the last 10 years where the average yield was only 2.12%. This is much to look forward to, especially if you have a balanced portfolio, as bond returns have been far off the average of 6.03% in the past.
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