The Outlook for Long-Term Interest Rates
Market yields on the benchmark ten-year US Treasury bond have surged from a low of 3.25% earlier this year to 4.6%, down from a peak of 5%. The current 4.6% market yield is comprised of a real yield of 2.2% and an inflation premium of 2.4%. Nearly 90% of the increase in yields can be attributed to the spike in real yields. Assuming a normal real yield of 2% and an inflation premium of 3%, fair value for ten-year US Treasury bond yields would be 5%.
From a short-term cyclical perspective, bond yields are likely to remain in an interim consolidation phase uptrend, followed by further increases in 2024. Rates will not peak until there is concrete evidence that aggregate spending is peaking. For borrowers, the key takeaway is that market interest rates will remain higher for longer... READ MORE
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