The US 30-year Treasury yield closed at 5.683% on October 7, up 38 basis points from its September 22 close of 5.303%. It rose in nine of the eleven sessions between those dates, and no single session moved it by more than 10 basis points.
That is what makes this move unusual to live through. Long bond holders lost ground every few days in steps too small to make a headline, and then on Wednesday the Federal Reserve minutes, a 1.7% drop in the TSX Composite to 35,041.86 and a 30-year yield that touched its highest level since 2002 all arrived in the same news cycle.
Why a Slow Loss Gets Noticed Late
Amos Tversky and Daniel Kahneman described the availability heuristic in their 1974 paper in Science: people judge how frequent or important something is by how easily an example comes to mind. A 1.7% one-day equity decline is easy to recall. A 4 basis point drift in a long bond yield is not.
The result is an asymmetry in attention. The 30-year yield gained 34 basis points between September 22 and October 6 in daily moves of 10 basis points or less, while the equity market produced one vivid session on October 7. Losses that arrive in small increments tend to be registered at the next statement, not on the day they occur.
The 30-year Treasury yield climbed 38 basis points across eleven sessions after the September 22 close without a single daily move above 10 basis points, a slope that registers far less loudly than a one-day equity drop.
The Federal Reserve raised its policy rate 25 basis points to 3.75% to 4.00% at the September 15 and 16 meeting. The 30-year yield closed lower the next day at 5.296%, and its first close back above the September 16 level came on September 23.
The Reference Point Is Further Away Than It Feels
Prospect theory, set out by Kahneman and Tversky in a 1979 Econometrica paper, holds that people judge outcomes as gains or losses against a reference point, not in absolute terms. Their 1992 cumulative version estimated that a loss weighs about 2.25 times as heavily as a gain of equal size.
The reference point matters here because the 30-year yield sits 116 basis points above its 52-week low of 4.521%, according to Investing.com. Anyone whose mental picture of long-term rates was formed during the past year is anchored to a number that no longer describes the market, and each new close widens the gap.
Why October 7 May Reset the Baseline
The Federal Reserve minutes released Wednesday showed participants backing the September hike, the first in more than three years, and most participants judged that another increase would likely be appropriate by year end. Futures markets price an October hike at roughly 17 to 19 per cent and a hike by December at roughly 85 per cent.
When an expected path moves from possible to likely, a loss that investors had coded as temporary gets recoded as the new baseline. That recoding is the point at which the question shifts from whether to wait to whether to act. Shlomo Benartzi and Richard Thaler named the related pattern in 1995: myopic loss aversion, in which investors who evaluate their holdings frequently perceive more losses and demand more compensation for holding risk.
Three scheduled evaluation points fall inside the next three weeks: the Canadian jobs report on October 9, September CPI on October 19 and the Bank of Canada decision with its Monetary Policy Report on October 28.
The Canadian Version of the Pattern
The Government of Canada 10-year yield sat at 3.985% and the 2-year at 3.267% after Wednesday. The Bank of Canada policy rate remains 2.25% after a seventh consecutive hold on September 2, and Governor Tiff Macklem said in a September 21 speech in Halifax that the Bank does not want to be late in raising it. Markets price at least one 25 basis point hike by year end.
The same rate path reaches a Canadian household through several channels at once. RBC fell $4.23, or 2.2%, to $192.12 on Wednesday and TD fell $3.55, or 3%, while the loonie traded near C$1.426 per US dollar after a fourth straight weekly decline. Thaler described the tendency to treat each of these as a separate pool of money as mental accounting in a 1999 paper, and it is the reason the combined exposure is rarely seen as one position.