US Treasury Bond Yields Reach 20-Year Highs

US Treasury bonds with maturities of 10 years or more currently offer real yields between 2% and 2.5%, representing their most attractive risk-adjusted return in nearly twenty years. This shift comes as investors weigh persistent inflation and fiscal deficits against the potential for high returns.

Market data indicates an Equity Risk Premium of -1.30%, suggesting that US equities have become riskier than bonds. This trend is attributed to extreme valuations and market euphoria surrounding artificial intelligence.

In response, some investors are adding long-term Treasuries to their portfolios at yields of 5% to 5.5% to secure diversification and downside protection. There are indications that investors plan to increase these allocations further if yields climb to 6% or 7%.