Risk may be the new new focus in the capital markets these days after the recent turmoil in equity markets around the globe, but the price of risk isn’t exactly compelling when measured by yields in debt securities.
With the 10-year Treasury yield under 4.6% at the moment, there’s little incentive to rush in and buy if the goal is holding until maturity. Nearly half of the current yield is slated to evaporate into the ether of inflation, based on the latest measure of annualized consumer prices.
Meanwhile, we’re in no mood to reach down into lesser-graded debt in search of higher yields. Moody’s Baa-rated corporate bonds (the lowest rung of investment-grade debt) last week were yielding around 6.16%, or about 166 basis points over 10-year Treasuries. As our chart below shows, that’s the slimmest risk premium for Baa over the 10 year since the late-1990s.
