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The restrictive rate threshold
10Y yields above 5% last occurred persistently in 2006-07 before the GFC. At this level, the cost of capital significantly constrains corporate investment, housing affordability, and government borrowing costs.
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 5% 10Y yields, mortgage rates exceed 7%, corporate refinancing becomes painful, and government interest expense crowds out fiscal spending. This is a pressure point for the economy.
With the 10Y at 5% and S&P 500 earnings yield at ~5%, stocks offer zero premium over risk-free bonds. Historically, this has preceded periods of below-average equity returns.
If rates rise from 5% to 6%, a 10-year Treasury loses approximately 8%. Long-duration bonds become genuinely risky when yields are already elevated.
When the risk-free rate matches the market's earnings yield, the extra compensation for owning stocks is thin — a reasonable moment to rebalance accumulated equity gains toward now-competitive Treasuries rather than letting the weight ride. Be deliberate about maturities, though: at these levels a further one-point rise in rates costs a 10-year bond roughly 8%, so consider laddering rather than locking everything in long.