The U.S. Bond Market Before 1926, Part III : Total Return Versus Basic Yield, 1897 - 1926

Bond prices from 1897 to 1926 have not been compiled. Financial historians have made do with yield series offered by Macaulay (1938) or with yield summaries found in Durand (1942), Hickman (1958), or Homer (1963). Where holding period returns have been of interest (Siegel 2014), these have been constructed using yield estimates rather than price observations. I found these yield estimates to be problematic in multiple respects, notably a focus on the pure interest rate, the basic yield, rather than the average yield that could be obtained by investors holding a broad index of large, liquid investment grade bonds. Accordingly, I collected and here report price observations for over 300 corporate bonds trading on the NYSE between 1897 and 1926. I find that market yields were higher, and holding period returns stronger, than currently understood. The result is to push forward the point where stocks first began to out-perform bonds to the years following World War II. This paper in conjunction with previous efforts shows that stock and bond portfolios performed about the same over the first century and a half after the founding of US financial markets. No sustained out-performance by stocks can be found prior to World War II