Long-term Bond Spreads

A hundred years of even more interesting history

In yesterday’s post, I covered bond yields over the last one hundred years. That was just a lead-up for a much more interesting chart, which is the difference between those two series:

Remember, the spread between safe investments and less safe investments is a good indicator of stress in the market. We can see that recent events, as terrible as they are, have not translated to stress in credit markets as bad as the Financial Crisis. And, a lot of that is due to intervention by the Federal Reserve.

But, even though the Financial Crisis was bad, it’s pretty easy to see just how insanely bad the Great Depression was. That spike is out of control compared to anything else in the last hundred years, which makes sense as that was the worst economic period in that time frame.

Credit stress on that level is something we are unlikely to see in the near future. That is, unless 2020 has a few more surprises in store for us.

Maybe discovery of an imminent giant meteor impact could do the trick but, at this rate, the stock market would probably hit an all-time high on that news. Oh well, sometimes things are just going to be irrational!