Real Yield and The 10 Year
The 10 Year Treasury’s real yield is too low given this dovish Fed.
If you believe CPI as an inflation measure, you’re at a 4.1% Core inflation rate. That figure could go higher, particularly if the Fed is done with rate hikes and continues with its muted QT program.
Meanwhile, the 10 Year Treasury yields 4.95% plus or minus. That’s not even a 1% real yield on a security with a 10 year holding period, the underlying fundamentals for which are deteriorating as the U.S. consistently runs deficits, thereby diluting the Dollar and increasing default risk. Given this set of circumstances, who wants to own the 10 Year, particularly if the Fed’s next move is to lower rates and not fight inflation? Long yields will march higher if the Fed does nothing at its November 1st FOMC meeting.