The 10-year Treasury topped 4.81% this week as the bond market continues to signal concern over inflation and rising oil prices and our rising deficit. This has been the highest level since October 2023, when the 10-year touched 4.92%. (1) Investors are essentially demanding more compensation to hold U.S. government debt, and that dynamic is a meaningful driver behind the recent move higher in yields. Global bond markets are telling a similar story, with yields up across the board: UK – 5.23%, Australia – 5.221%, France – 4.249%, Italy – 4.214%, Canada -3.41%, Germany – 3.378%, and Japan – 3.011%.
While higher bond yields can put pressure on the stock market, they’ve also opened the door to some of the most competitive municipal bond returns we’ve seen in years, particularly for investors in high income tax states. After several years of an aggressive stock market, many portfolios have drifted from a traditional 60/40 stock-to-bond balance. Today, investors can earn meaningful income without reaching far out the yield curve, and in most cases, still outpace current inflation.
If diversification, tax exemption, and a solid income stream have a place in your investing strategy, today’s yields merit consideration.
