Is a Higher High in Rates Coming?


Interest rates seemed poised for their first higher high in almost 40 years. Should this happen, it would suggest interest rates are in a secular uptrend.


The chart below is a log scale of 10-year yields over the last 50 years. Marked on the chart are all the major peaks and troughs since the all-time high of 15.84% on September 30, 1981. Note the pattern of lower highs and lower lows for 37 years. This was broken in 2018 with a slightly higher high of 3.24% (up from 3.04% in 2014).

The 10-year is currently at 3.09%. Should it exceed 3.24% and move toward 3.40% (the red trend line), basic technical analysis suggests the secular trend in interest rates is now higher and the bull market officially ended in mid-2020 at 0.52%.



The next chart shows 50 years of the federal funds rate, again on a log scale.



Since the 20% peak in 1981, every hiking campaign in the last 41 years ended at a lower high than the previous hiking campaign.

The last campaign ended December 19, 2018, at 2.50% (upper end of the 25 basis point range).

Currently, the federal funds rate is 1.00%. Jay Powell suggested the next couple of meetings would see 50 basis point hikes. So this gets the funds rate to 2% by the end of July and sets the stage for the first “higher high” hiking campaign since the 1970s.