Interest rates have been anything but quiet lately. With Kevin Warsh stepping in for Jerome Powell as Federal Reserve Chair late last week, alongside inflation uncertainty and stronger than expected earnings growth, markets have been recalibrating expectations.
The 10-year Treasury yield currently sits at 4.56%, while the 2-year yield is at 4.12%. Looking at the past couple years in isolation, it appears yields have remained stubborn, hovering around the highs of late-2024.
However, zooming out shows current yields are hardly out of the ordinary. The 10-year treasury yield has averaged roughly 4.5% since 1988, putting today’s rate right at the historical norm.
The sense that rates are “high” says more about the unusually low-rate era we lived through in the 2010s and early 2020s than it does about where rates stand today.
While the recent rate volatility has been a headwind for bonds in recent weeks, the bond market itself has held up reasonably well year-to-date. Aggregate US bonds are essentially flat for the year, while other categories like high-yield, international, and shorter-duration bonds are modestly positive.
There’s also a silver lining for long-term investors. The starting yield on a bond tends to be a strong predictor of forward returns. With the 10-year anchored around 4.5%, history suggests today’s yields offer a reasonable foundation for future fixed income performance.
Higher rates can sting in the short run, but they often reward patient investors over time.
– The Aspire Wealth Team
