What goes up must go down.

The chart above show the yield on what is known as a constant maturity treasury; effectively we’re graphing the yield on the 10Y Treasury over time.

You’ll note the aberration – from the early 80s, or for roughly thirty years, yields have been moving in one direction – DOWN. This can’t continue forever and the corrective process is called mean reversion and it applies to many time series, US Treasury yields included.

We know the long run yield on the 10Y US Treasury is 6.75%; currently the 10Y is priced to yield roughly 2%. In other words, it is seriously overpriced compared to its long run average yield.

Its not only the 10Y Treasury, 30Y US bonds have been similarly impacted. Demand for US debt is surging but this won’t last forever.

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