Okay, we've hit 6%! What now?

The 30-year Treasury bond took wing on Friday, reducing its yield to 5.93%, and the flight caught everyone's attention. The yield on the long bond seemed to slice down through 6% as easily as a knife cuts through butter at a Labor Day corn roast, proving that it was no "key psychological barrier" after all.

It took only six months for the yield on the long Treasury bond to come down from 7%. At their peak, in October 1981, long Treasury bonds yielded more than 15%, the highest nominal yield in the history of the country. Late last week, some of those high-coupon issues marketed in the early 1980s were trading above 175% of their face value.

Until last Friday morning, long-term government bonds had not yielded less than 6% since January 1973. Single-digit percentages are often called psychological barriers in bond market reports, and passing them is the kind of bond market event that makes the front pages of the general press and the nightly television news. With the market sweeping ahead, bond analysts were beginning to predict yields would drop to 5 1/2% or even further.

The immediate cause of last Friday's no-nonsense move through 6% was the week's weak economic reports. The Labor Department reported that nonfarm payrolls suffered a 39,000 decrease in August, not the 145,000 or 150,000 increase the credit market had expected. The report was the first indicator for August, and it seemed to prove beyond all doubt that the economic recovery is lifeless.

As William Sullivan of Dean Witter Reynolds Inc. said on Tuesday, it shouldn't be overlooked that the consumer price index has risen at only a 1.7% annual rate since February and the producer price index (next scheduled to be released this Friday) is up only 1.3% over the last year. The bond market, he said, could be judging these patterns as "the new reality for the U.S.," signaling another systemic drop in core inflation to the 2.0% area.

Markets always zig and zag, and the bond market's current rally doubtless will turn sooner or later. So sure, there will be a retreat, but that retreat won't be a bona fide change of direction for the bond market.

Yields, driven by sluggish economic growth and a lower rate of inflation, still have some distance to fall. That's the legacy of the end of the Cold War as well as the reinvention of government, the right-sizing of corporate America, the reduction of the federal deficit, and all the other fashionable trends of the 1990s.

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