With interest rates surging in recent days, I think it is interesting to stand back and look at a chart of the 10-Year Treasury Yield from a broader historical perspective. Via Business Insider:
Source: Global Financial Data (click to enlarge)
Business Insider’s take:
So if you believe in the power of mean reversion, then it’s not unreasonable to expect yields to head back up toward 4%.
Although investors have grown accustomed to interest rates primarily moving in one direction (down) over the past 30+ years, history shows a number of periods of extended rising rate environments. Needless to say, it is quite possible that there will be opportunities to add value over a passive approach to fixed income exposure by being tactical in years ahead. In the context of multi-asset class portfolios, that may mean underweighting fixed income altogether. For allocations within fixed income, it may mean being more discriminating when determining what sectors of fixed income to own. I suspect that relative strength may prove to be very valuable in the years ahead as it relates to fixed income exposure.
