A new paradigm

The US 10 Year #treasury bond may have started a new regime in terms of yield. For 40 years, after Fed chairman Paul Volcker raised interest rates to break the back of inflation, the yield of the 10 year treasury has come down consistently, having its minimum right after the pandemic. And it looks like #inflation and #ratehikes are bringing a new cycle where yields need to rise to accommodate the new inflation-growth-unemployment regime. In the past, cycles have lasted around 20-30 years, being the latest one the longest over the last 150 years. There are at least 2 generations of investors (and financial advisors) that haven’t lived in a consistent upward yield environment, with its implications on asset pricing. The High Yield market as we know it today, for example, was formally created in the 80’s and have enjoyed the last 40 years of down trending rates. Also , #Riskpremia, the basis of equity valuations on #capm is based on risk free rates, which are now rising. A new paradigm has begun.