The entire US Treasury curve from 5-year to 30-year is now above 5%.
This isn't some technical blip. When safe government bonds pay 5%+, the math changes for everything else:
• Corporate bonds need to offer 6-7%+ to compete
• Dividend stocks yielding 2-3% suddenly look less attractive
• Private equity hurdle rates get tougher
• Real estate cap rates need to reprice
• Growth stocks trading at 50x sales face a reality check
The "risk-free" rate is the foundation of all asset pricing. When it moves this much, everything built on top has to adjust.
People keep waiting for rates to drop back to 2%. Maybe they will eventually. But right now, the market is saying: 5% is the new normal. Act accordingly.
This isn't some technical blip. When safe government bonds pay 5%+, the math changes for everything else:
• Corporate bonds need to offer 6-7%+ to compete
• Dividend stocks yielding 2-3% suddenly look less attractive
• Private equity hurdle rates get tougher
• Real estate cap rates need to reprice
• Growth stocks trading at 50x sales face a reality check
The "risk-free" rate is the foundation of all asset pricing. When it moves this much, everything built on top has to adjust.
People keep waiting for rates to drop back to 2%. Maybe they will eventually. But right now, the market is saying: 5% is the new normal. Act accordingly.
