Asset Allocation – The New Playbook
April 20, 2021 by Ben Pahl
Interest rates reached their highest point in modern history in 1981 when the annual average mortgage interest rate was 16.63%. Savings and CD rates were equally high and the average yield of a 10-year treasury was 13.92%. In 1990, the average mortgage interest rate was 10.13%, falling to 6.94% by 1998. The 2000s saw mortgage rates fall to 5.04% by 2009. The following decade saw mortgage rates hit 3.85% in 2015. In 2020, the federal funds rate fell to the 0 – 0.25% range, and on June 23 Freddie Mac reported a 30-year fixed rate mortgage figure of 3.6%.
With bond values rising as interest rates fall, fixed income investors have been swimming with the current for forty years. Benefiting from interest payments and upward pressure to bond values, fixed income investors have reaped the rewards that come with four decades of declining interest rates.