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Since 2007, the 10-year Treasury yield has struggled to reach its long-term average of 4.5%.
10-year US Treasury yield, an important indicator of economic health reached An important milestone. For the first time since the global financial crisis (GFC) of 2008-09, it has reached back to the 4.5% yield. This development has brought optimism to long-term Treasury investors, offering the prospect of positive annual real yields, especially with a reduction in inflation.
Return to historical norms
The resurgence of the 10-year US Treasury yield to 4.5% marks a return to its long-term historical average. This rate has served as a benchmark for the bond market and has been a reliable measure of economic conditions for more than 200 years.
A notable aspect of this milestone is that the 10-year yield has now easily surpassed the annual US inflation rate. As of August, inflation was measured at 3.7%. This means that investors in 10-year Treasury notes can earn positive annual real yields, provided inflation remains relatively stable.
This positive real yield is a welcome development for investors who have grappled with the challenges of low yields in recent years, often struggling to keep pace with rising living costs.
The 10-year US Treasury yield is not only important for bond investors, but also plays a key role in determining mortgage rates. Mortgage rates often follow the trajectory of the 10-year yield, making it an important factor for home buyers and the housing market as a whole. The recent rise in the 10-year yield could push mortgage rates slightly higher, potentially impacting homeownership affordability.
A decade of low fiscal yields
Since 2007, the 10-year Treasury yield is struggled To reach its long-term average of 4.5%. The outcome of the GFC prompted the Federal Reserve to implement a policy of low interest rates to stimulate economic recovery.
This led to a long period during which investors found limited appeal in Treasuries for their yield potential. The 10-year yield remained below 3% for an extended period of 11 years, from mid-2011 to mid-2022, with only brief exceptions in December 2013 and October 2018.
During this era of historically low interest rates, annual inflation generally ranged between 1% and 3%, except for a brief dip to 0.1% in 2015. Investors faced a challenging investment landscape, with Treasuries offering little in the way of positive real yields. This was particularly notable during periods of rising global stock markets, where equities appeared more attractive in terms of returns.
However, the dynamics of the financial landscape have changed recently with nominal rates rising. Federal Reserve reacts to inflation concerns after pandemic Push Its benchmark rate is at levels not seen in two decades. The effort was aimed at controlling inflation, which reached levels not seen in 40 years.
As it stands, investors now find themselves in a position where they can consider Treasuries not only as a means of reducing portfolio risk but also as an attractive cash-generating alternative to other asset classes.
Benjamin Godfrey is a blockchain enthusiast and journalist who loves writing about real-life applications of blockchain technology and innovations to promote general acceptance and worldwide integration of the emerging technology. His desire to educate people about cryptocurrencies drives his contributions to well-known blockchain media and sites.
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