Bonds history.pngThe arrival of the internet should make it easier to source key data from around the world. But instead, it seems to encourage Twitter-like behaviour, where everyone simply repeats what has already been said.

How else to explain the almost universal view that government bond yields in countries such as the US and UK are in a major asset bubble? Almost no serious commentator dares to suggest an alternative view.

Yet detailed yield data for UK government bonds is available from 1900, and for US bonds from 1926, in the annual Barclays Equity Gilt Study. As the chart above shows, this gives a completely different picture:

• UK government bonds (blue column) averaged 3.7% between 1900-49
• US government bonds (red) averaged 2.7% between 1926-49

Yields then began to increase as the Western BabyBoomer generation (born 1946-70) created a surge in demand. They reached a peak in the 1970s-90s, when UK rates averaged 10.4% and US rates averaged 8%.

But since then, they have returned to more normal levels. Since 2000, they have averaged 4.2% in the UK and 4.5% in the US – still higher than the pre-1950 pattern. This suggests they are reverting to the mean, as usual with major investment classes, rather than in an asset bubble.

This matters enormously for the global economy:

• People will have to save much more money for their pensions
• They will therefore have less money to spend before they retire
• Income levels in retirement will also be lower
• Thus growth is likely to be slower than in the 1982-2007 supercycle

This also confirms our argument in chapter 2 of Boom, Gloom and the New Normal. There, we suggest that Japan’s experience over the past 20 years is not unique. Its BabyBoom took place earlier than in the West. And therefore its society is already well down the path of adjusting to a world of lower growth and much lower inflation.