The simplest breakdown of the history of nineteenth-century American bond yields, as pictured in the chart, is into two easily distinguishable parts: (A) erratic fluctuations in a high but declining range from 1800 to 1870, and (B) a sustained decline in yields during the last three decades of the century. Both of these periods, however, can be subdivided.
A. The high-yield decades included three periods of declining yields and three periods of rising yields. Each of these fluctuations were far more pronounced in government yields than in New England municipal yields. They may be summarized as follows:
1. 1798 to 1810-1811. A decline in all yields, briefly interrupted by a small advance in 1805.
2. 1810-1811 to 1815-1816. A rise in all yields during the war, almost, but not quite, to their high levels of 1798.
3. 1815-1816 to 1825. A sharp decline in all yields to levels well below the lows of the first decade.
4. 1825 to 1842-1848. A gradual rise in municipal yields, even during the years when the federal debt was being paid off, followed by sharply higher yields for the first new federal issues. The high yields of the 1840's were well below 1810-1816 highs.
5. 1842-1848 to 1858. A decline in government yields to the low levels of the 1820's, but no pronounced trend in these municipal yields.
6. 1858 to 1861-1865. A sharp rise in government yields to wartime highs in 1861, which were nevertheless below their highs of 1814-1815 and 1798. A very irregular advance in municipal yields to levels approximating 1816 was interrupted by a sharp brief drop in 1863. There were conflicting trends in the different departments of the market during the Civil War.
B. The sweeping decline in yields after the Civil War started first in governments, moved much later to rails, and last to municipals. The special factors then helping governments and the credit risk present in railroad bonds suggest that municipals were then the best guide to prime market yields. If so, this great bull market in prime American bonds can be dated from 1873. It lasted for more than twenty-five years. This bull market can be subdivided into three parts:
1. 1873 to 1886. A sharp decline in all yields. The 31/2% level which became general for municipals was far below any yields attained in the first seven decades of the century.
2. 1886 to 1893. A small, irregular advance in yields which remained in a very low band. Best-grade rails now for the first time seemed to command truly high-grade prices.
3. 1893 to 1899. A renewed decline in municipal and corporate bond yields to 3-3K%, which were approximately their low yields until the 1930's.
Chart 32, which compares the yields on British consols with American long-term bonds, reveals similarities and differences. Yields in both countries declined very substantially during the century as a whole. British yields were always below American yields.
During the period of the Napoleonic Wars, of which our War of 1812 may be considered a part, both British and American yields were in their high range for the century. Yields in both countries declined after 1815. After 1825-1830 American yields tended to rise sharply, while British yields declined further. This created a very wide differential from the 1830's through the 1870's, which, no doubt, encouraged heavy British investment in American securities. British yields rose only a trifle during our Civil War period, when American yields rose substantially.
After 1870 both markets again moved together in a manner that has continued most of the time ever since. While yields in both countries declined sharply during the last three decades of the century, the American decline was far larger than the British decline, especially in the 1870's. The gap was then partly closed. However, American yields did not reach the low level of British yields in the nineteenth century and, indeed, did not decline below British yields until after World War I.
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