Last night the U.S. 10-Year Treasury yield did something it hasn’t done since 2010… it hit 4%.

Just two years ago the 10-year was yielding a measly 0.5%! It’s certainly been a wild, parabolic move in rates.

See chart below of 10-Year Treasury Rate since the eve of the Great Financial Crisis…

This is great news for future expected returns of clients’ bond holdings, but it’s also been a painful adjustment in the interim because bond prices fall when interest rates rise (and vice versa).

In fact, 2022 so far is the worst year in history for bonds (although, still not as bad as owning stocks this year).

“…there has not been a double-digit decline in bonds since 1931, when they fell by 15%.” 

However, it’s a short-term, temporary pain. Because, now, folks who own a 10-year Treasury will earn about 4% per year over the next ten years (if held until maturity), and the old treasuries they owned last year will still mature at full value, they just took a temporary price hit in the interim.

In other words, fixed income investors can FINALLY earn decent income on their investments and cash reserves again, which has been non-existent for over a decade. They no longer have to “reach for yield” in very risky, speculative investments that have the potential of jeopardizing their financial independence.

As I update clients’ financial projections in the coming months (assuming no major changes), I will incorporate the new, higher expected return on fixed income investments.

Previously, I had to use very depressed return assumptions for bonds but now those expected returns over the next decade are much closer to historical averages. I’m not yet increasing stock return assumptions within projections because stocks remain far above fair value… refer to: No, Stocks Are Not Cheap Yet.

Below you’ll see the annual yields to maturity across the yield curve. Even short-term Treasuries are offering attractive yields. Notice the shorter-term yields are even higher than the longer-term yields (this is called a “yield curve inversion“).

A year ago when stocks were soaring a 4% annual return may not have seemed all that great, but when the stock market is down around 25% to date. stocks still appear to be expensive, and folks are getting nervous, suddenly a 4% annual return in a safe asset seems pretty good. And that illustrates an emotional component of investing -> Perspective, context and relativity play a huge role in how we feel about the same fact at different points in time.


Past performance is no guarantee of future results. All investments maintain risk of loss in addition to gain.

Data from third-parties is believed to be reliable but accuracy is not guaranteed. Much of the data used to interpret the markets and forecast returns are often at odds with each other and can result in different conclusions. Many different factors impact prices including factors not mentioned here. Any forecasts made are the opinion of the author. Markets are famously difficult to predict precisely because so many factors are involved…particularly over short time periods. And many folks don’t have the patience to see long-term forecasts play out because so much can happen in the interim..

This is not investment advice but merely a general commentary. Individualized investment advice cannot be provided until a thorough review of your unique circumstances and financial goals is completed.

Views provided here are current only as of the moment of posting and are subject to change at any time without notification.

Print Friendly, PDF & Email