Understanding Bond Prices and Yields

There is a slow oversupply of treasuries leading to a decrease in bond prices and increase in bond yields. Bonds are not currently attractive as core holdings due to lack of excess returns over cash. The term premium, which reflects the reward for taking on duration risk, is currently positive but still needs to increase further to make bonds a compelling investment compared to cash. Changes in policy decisions greatly impact the attractiveness of assets. Historically, term premiums were higher, and with the current fed funds rate, it is predicted that the 10-year note may reach around 5.5%. Long-term bonds are not as expensive as they were in 2021, yet still remain costly compared to historical levels.

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