Bonds are Back: The Real Yield Reset

US 10-year Treasury yields are climbing, driven by robust economic growth rather than inflation fears. This economic resilience, fueled by AI investment and consumer spending, suggests a higher neutral real rate than previously estimated.

This shift in real yields offers investors a compelling opportunity. The widening spread between US 10-year real yields and the S&P 500 dividend yield presents attractive relative value in fixed income, a situation not seen in over two decades.

Consequently, high-quality bonds are once again providing competitive real income and diversification benefits. Investors should consider this reassessment as a signal of improved return potential in fixed income after an extended period of low yields.