Treasury Yields Are Headed Higher. The Stock Market Won’t Like It.

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Federal Reserve Chairman Jerome Powell has said that the central bank will proceed cautiously in raising rates.

Chen Mengtong/China News Service/VCG/Getty Images)

It’s back to the future for interest rates.

The benchmark 10-year Treasury note yield briefly breached the 4.5% level this past week, which was widely noted to be the highest level since 2007. That makes it seem as if this were something extraordinary. In actuality, it represented nothing more than a return to normalcy.

This 4.5% yield represents the long-term average for U.S. government debt, and by that we mean really long term, going all the way back to 1790. Credit for that observation goes to Jim Reid, Deutsche Bank’s head of global fundamental credit strategy.

“In some ways, this could be seen as a concern, since we’re ‘only’ now at normal historical levels, despite the fact inflation is still elevated and record peacetime deficits are predicted for the rest of your careers, however old you are,” he commented in one of his always informative Chart of the Day notes.

“The good news is that at least value has returned. It’s going to be much more difficult for longer-term investors to lose money in Treasuries now that it was for most of the last decade in both nominal and, to a lesser degree, real terms,” he added.

But that’s after stunning losses in supposedly “riskless” government securities, some of which sell at less than 50% their face value. With a nod to our Deadhead central bank chief, what a long, strange trip it’s been—and a bad trip for those who own the 1.25% Treasury bonds due on May 15, 2050, which closed on Thursday at a price…


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