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Higher-for-longer rate regime
The 10Y Treasury yield above 4% represents a return to pre-GFC rate levels. From 2009-2021, 10Y yields averaged approximately 2.2%. The return to 4%+ changes the relative attractiveness of stocks vs. bonds and impacts equity valuations through the discount rate.
Editorial commentary written by ALAN analysts. Figures cited below are analyst-authored context — they are not derived from the chart above and may reflect different windows or sources.
At 4%+ yields, a 60/40 portfolio generates meaningful income from the bond allocation for the first time since 2007. This is structurally positive for balanced portfolios.
Higher rates compress the P/E multiple investors are willing to pay. The S&P 500 has historically averaged a 16x P/E when the 10Y is between 4-5%, vs. 21x when yields are below 3%.
In low-rate regimes (2010-2021), stocks and bonds moved opposite (bonds hedged stocks). In higher-rate regimes (2022+), both fall together during sell-offs, reducing diversification benefit.
With bonds paying meaningful income again, revisit allocation decisions made when yields were near 2% — the case for stretching into riskier assets for yield is weaker now. Review what actually diversifies your equities, too: in higher-rate regimes stocks and bonds have tended to fall together, so cash and inflation-protected bonds may need to carry more of the hedging load.