Financial conditions are moving toward normal, and away from bizarre. That's mostly good news for investors.
I’m ruling out dressing for Halloween as a 10-year Treasury paying 5%. It’s too scary, judging by Wall Street chatter over a recent climb in yields. Plus, I’d have to explain to neighborhood CFAs that the paper certificate is just a metaphor, and that yes, I know that Treasury issuance has been almost entirely electronic for years. But mostly the too-scary part.
Three quick points of emotional support for rattled investors: First, yields are higher, but not particularly high. Since 1962, the average daily 10-year Treasury yield was more than a point higher than now—5.9%, according to data from FRED, the Federal Reserve’s economic data service. Since 1971, the average 30-year mortgage rate is 7.7%, versus a recent 7.3%.
Third, higher yields don’t have to be painful for stock investors. From 1985 to 2005, inflation-adjusted bond yields were higher than now, on average, and stocks during that stretch returned 15% a year, according to BofA Securities. Subramanian, head of U.S. equity there, isn’t overly concerned about recent stock market selling. She points out that 5% market pullbacks have happened three times a year on average in data going back to the 1920s.
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