4. Yields as measured against nominal growth are finally a bit high. Historically, the yield on the 10-year U.S. note is between 0.8x and 1.0x the nominal domestic GDP growth rate. (Note: I would argue that, given the structural headwinds to global growth, 0.8x to 0.9x may be an appropriate multiplier going forward.) Year-over-year nominal U.S. growth is currently +2.9%; 0.85 multiplied by 2.90 yields an equilibrium, or fair market value, of the 10-year yield at 2.465%, or about 46 basis points below the current yield.
5. The long end of the yield curve has increased dramatically relative to the short end. The spread between the 10-year yield and the federal funds rate is now over 280 basis points compared to the long-term average of about 180 basis points.
6. Real interest rates are higher. The real 10-year U.S. note yields +1.8% -- it was slightly negative only three months ago -- which is in line with expected trend/long-term real GDP of +2% to +2.5%.
I would buy the iShares 20+ Year Treasury Bond ETF (TLT) under $103.
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