The 3.95% yield on the 10-Year Treasury is too low.
The 10-Year Treasury yield assumes we are going back to a 0.00%-1.00% Fed Funds rate. We are not. We have far too much public debt ($31.5 Trillion) to encourage the type of debt issuance we experienced during COVID when the fiscal and monetary sides lost their collective minds and took the public debt from $23.2 Trillion to where it stands today.
Similarly, given the massive public debt load, the Fed is handcuffed and can’t fight inflation as aggressively as former Fed Chair Paul Volcker did (we wrote about this in our book). We are going to be at a 4-5% Fed Funds rate for the foreseeable future. Thus, the 10-year Treasury and long-bonds ought to see their yields adjust higher.
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