The bond market hasn’t been this popular for over a decade, as some have argued that the risks of owning U.S. stocks today may outweigh the rewards.
For almost 15 years after the financial crisis of 2008, bond yields remained low and the U.S. stock market was much more appealing.Treasury bills TMUBMUSD01Y, 5.246%, which are arguably the safest debt, are now offering yields well above 4%. From 2013 to 2021, only emerging market and high-yield bonds offered yields over 4%, according to data from BlackRock.
While a deal is now in place, Mike Boroughs, managing partner of Fortis Financial Group, a wealth management firm, said from the risk management perspective, he wouldn’t recommend clients betting on the very short-term Treasurys. The PCE index, which is the Fed’s preferred inflation barometer, rose 0.4% in April and the yearly increase in prices rose to 4.4% from 4.2% in the prior month.
As bond yields went up, some of the pressure has already been reflected in equity valuations, Flax. “And we need to think about how much of it is priced in,” Flax said. However, Colmar said he doesn’t see that as the case. Structural inflation has tilted up, and both the equilibrium Fed funds rates and inflation could stay higher, Colmar said. “On a 10-year basis, you might not yield very much in real yields. And you might even lose a little bit of purchasing power, flat at best,” Colmar noted via phone.
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