Post-GFC the 10 year treasury yield has never exceeded 3.8%, and during this period it traded with an average yield in the 1.5% – 3% range. In contrast, historically the 10 year has traded with a yield of around 4 – 6% – more than double that of the post-GFC average.
Given how hot inflation is today I'm not sure what to make of the fact that 10 year seems to be pricing a return to the post-GFC status quo (today it's at 2.7%). I understand that the market is worrying about growth and a potential recession, but is it reasonable that the 10 year is trading around the same levels it has for the last decade, a decade where inflationary pressures have been historically low?
While I don't believe that we're about to enter a secular high inflationary environment, it seems quite likely to me that inflation pressures this decade will at least be slightly higher than they were in the last decade, and therefore perhaps a more reasonable yield for the 10 year would be 3% – 4%.
I've not seen much discussion here around the recent moves in the bond market, but clearly the bond market has been the primary driver of tech stock gains over the last few weeks. What do you guys think – do you see the 10 year yield rising from here? Or do you think it's the current yield is reasonable given recession risks?
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