Interest Rates logically trade around the mean

In the 1980’s, if you were borrowing money at 17%, it’s because bonds were yielding 15%.

Today, when bonds are yielding 5%, you’re probably paying 7% for that money.

When you consider that the average long-term interest rate for British Gilts over 300 years is approximately 4.5%, it sounds fair that the long-term cost of money should be around 6%.

Thus, according to a 300 year view, interest rates of 2% or 12% should be considered rare or at least, an extreme.

Currently, I can understand if borrowers are crying foul that borrowing rates are 7%.

Firstly, they’re likely to be anchored to the 2% rate they saw in the early 2020’s and then extrapolated it forever.

Secondly, they are probably still heavily indebted.

And that can create stress when the magnitude of the borrowing interest rate itself has increased more than 3-fold.

Prior to the 2020’s, at no stage have Australian bond yields risen by more than 2-fold.

The move over the past 5 years has been 7-fold.

October 21, 2026

rob@karriasset.com.au