US government bond yields are showing a striking similarity to 1967 – a pattern that preceded one of the most volatile periods in financial market history.
When we look at the 1960s trajectory, government bond yields remained relatively stable until 1967, when they began a dramatic surge upward.
This surge triggered multiple economic contractions throughout the 1970s and 1980s.
Today, we’re seeing a very similar pattern emerge.
There’s a good reason why rising bond yields are so dangerous…
They influence every interest rate across the economy, from corporate debt to mortgage rates.
In our credit-based economy, higher borrowing costs directly translate to slower economic growth.
The 1970s proved this relationship.
Every period of aggressive rate hikes coincided with major stock market drawdowns.
If today bond yields rise secularly, like they did after 1967, we could be in for a substantial market peak.
Just like what happened in the decade following 1967.
The Soft Landing Narrative
One key event in the late 1960s was the Fed’s aggressive rate hikes.
Between 1965 and 1967, the Fed raised rates from about 3% to 6%.
Historically, such rapid hikes have typically led to recessions.
But in 1967, that didn’t happen…
If we check the unemployment rate during that period, it ticked up briefly, but quickly came back down.
So no recession materialized, something highly unusual for such aggressive monetary tightening.
Fast forward to today:
The Fed hiked rates aggressively in 2022, yet no recession has occurred.
Unemployment ticked up slightly, but is now turning lower – just like in 1967.
This is what’s known as a “Soft Landing“, which is when the Fed hikes rates but avoids a recession.
That’s the first similarity between 1967 and today.
Elevated Government Spending
No recession isn’t the only similarity between today and 1967 though…
Both soft landings also happened during periods of high government spending.
Over the last 5 years, government spending has surged at one of the fastest rates in 70 years, comparable to the late 1960s and post-2008 financial crisis.
Many experts blame the high government spending of the 1960s for fueling the inflation waves of the 1970s.
Looking at inflation after 1967, it began rising substantially within just a couple of years.
This marked the beginning of multiple inflation waves, which drove government bond yields higher throughout the 1970s.
Despite these key similarities, we don’t expect a repeat of high inflation.
The reason?
Today’s economy is structurally weaker than the 1960s.
In the 1960s, the personal savings rate was 12%, the highest in 60 years.
This meant consumers could increase their spending, keeping up with inflation.
Today’s savings rate averages just 4% – three times lower than the 1970s.
So, consumers don’t have the same leeway.
In fact, the relationship between savings rates and inflation is pretty close.
Today’s weak consumer suggests inflation will stay low, unless the government injects massive stimulus, which could push savings up and potentially lead to inflation.
That’s exactly what happened after Covid in 2020.
Trillions in stimulus boosted savings, which helped drive the inflation surge that followed.
Today, while government spending is high, it isn’t fueling a stronger consumer that could lead to higher inflation.
That’s a key difference from 1967.
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The Real Problem: Government Debt
There’s one more difference between today and 1967 that makes today’s situation different.
That is government debt.
This wasn’t a major issue in the late 1960s.
But today, the US government has been running a steep deficit since 2008, and is still bleeding about $500 billion per quarter.
As a result, government debt has skyrocketed.
When we overlay US GDP on top of debt, we see that debt levels have surpassed GDP levels, with the debt-to-GDP ratio at 120%.
Back in the 1960s, that number was just at 30%.
The reason this is important is cause the U.S. taxes GDP to service its debt.
But a high debt-to-GDP ratio raises concerns about sustainability.
If investors doubt U.S. Treasuries’ safety, they’ll demand higher yields, pushing rates even higher.
This isn’t just a theoretical concern…
Studies show every 1% rise in debt-to-GDP increases bond yields by 4 basis points.
So with today’s debt-to-GDP ratio level, it suggests that yields could be 400 basis points (or 4%) higher than they were back then.
If we apply that to today’s bond market, we could be looking at 10-year yields rising to 9%, without inflation even needing to move higher.
That alone could create extreme economic and market volatility.
This is a long-term issue that could drive bond yields higher over the next 5–10 years.
In the short term, however, we’re not as concerned.
Yields have already risen significantly and markets are adjusting to this new reality.
Over the next decade, high bond yields could create significant market and economic uncertainty, unless the government gets its budget under control.
For now, though, the bull market in stocks has been fueled by lower inflation, and we expect inflation to stay low over the next year due to a structurally weak consumer.
The Wealth Gap
Recent years have revealed a concerning trend: while the average person’s purchasing power declines, financial assets like stocks, gold, and crypto have soared.
This wealth disparity shows no signs of stopping in 2025.
As they say, if you can’t fight them, then join them.
This is why we’re strongly pushing for people to be invested in financial assets, to hedge themselves against rising wealth inequalities.
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