The 10-year U.S. Treasury yield, for the first time since before the 2008-09 Global Financial Crisis, rose late last week back to the 4.5% yield it has averaged for more than two centuries. With inflation moderating, that development finally has given long-term Treasury investors something to cheer about.

The 10-year yield now comfortably exceeds the annual U.S. inflation rate, which measured 3.7% in August. That means investors in 10-year notes can earn a positive annual 澳洲幸运5官方开奖结果体彩网:real yield, if inflation were to remain relatively steady—an elusive proposition in recent years.

This milestone is also important because the 10-year yield is used as a proxy for 澳洲幸运5官方开奖结果体彩网:mortgage rates and is seen as a sign of invest🎉or sentiment about the economy.

Reviewing Decades of Rolling Inflation

Dating back 225 years, 澳洲幸运5官方开奖结果体彩网:U.S. inflation in 10-year rolling periods, a measure that smooths out short-term fluctuations, has remained below the 10-year🧔 Treasury yield's long-term average 86% of the time. In just 31 of the rolling 10-year periods has inflation exceeded the long-term average of 4.5%, according to recent Deutsche Bank research.

Jim Reid, a multi-asset research strategist with Deutsche Bank, said in a market commentary that rolling U.S. inflation has remained higheඣr than 4.5% only during periods of world wars and the global energy shock of the 1970s.

Though high levels of global government debt in coming years may keep inflation higher than the 2% target of developed-market global 澳洲幸运5官方开奖结果体彩网:central banks, Reid do𒁏esn't think inflation will approach the 4🎶.5% average 10-year yield without an unforeseen event.

"Going forward, you would most likely need a major exogenous event to see inflation sustained that high for that long," Reid said. "As such, [Treasurys] are likely to be at least a competitive 澳洲幸运5官方开奖结果体彩网:asset class for the long-term 澳洲幸运5官方开奖结果体彩网:value investor again. It's been hard to say that for much of the last decade or so."

A 'Real' Opportunity

The 10-year yield hadn't reached its long-term average of 4.5% since 2007, which was before a period of historically low interest rates initiated by the Federal Reserve in response to the 澳洲幸运5官方开奖结果体彩网:Global Financial Crisis.

Because 澳洲幸运5官方开奖结果体彩网:nominal yields fell so low, investors haven't much sought out Treasurys for their yield potential in recent years. Except briefly in December 2013 and in October 2018, the 10-year yield remained below 3% for 11 straight years, extending from mid-2011 to mid-2022.

Annual inflation, except for a dip to 0.1% in 2015, ranged from 1% to 3% in that period before surging in 2021, prompting the Fed's rate-hike campaign beginning in March 2022. During that period, Treasurys offered investors little in the way𒆙 of positive real yields, especially in a period of rising global stock ma𒅌rkets.

Howe♏ver, rising nominal rates have changed that equation. The Fed pushed its benchmark rate to a two-decade high in the past year-and-a-half as it tried to rein in post-pandemic inflation, which spiked at the highest level in 40 years.

That Fed policy action has, in large part, succeeded. Now, instead of seeking Treasurys simply as a way to reduce 澳洲幸运5官方开奖结果体彩网:portfolio risk, as an investor, you can tap them as a serious cash-producing alternative to other asset classes.

Standing Out in the Crowd?

Reid said that if inflation remains in check while 10-year yields stay near their long-term average, a bigger concern may be whether investor demand for 澳洲幸运5官方开奖结果体彩网:risk-free Treasurys will "crowd out" investments in oth🐭er asset classes.

This question is particularly pertinent, the Deutsche Bank research strategist said, as the U.S. government increases Treasury security issuance to cover its 澳洲幸运5官方开奖结果体彩网:ever-growing debt.

"If you can get over 5% on cash and around 4.5% on longer-dated [Treasurys], then what return do you need on equities?" Reid said. "Clearly, 澳洲幸运5官方开奖结果体彩网:fixed income and deposit rates might not stay at these le✨vels. But at the moment, this is a very different landscape than the world of the decade or so before 2022."

Analysts have long contended that high government bond yields can cause investors to avoid other asset classes. But it hasn't always played out that way.

The 10-year Treasury yield exceeded 4.5% from 1966 through 2001. In those 36 years, the 10-year Treasury had a positive real yield for 61% of the time. Yet the 澳洲幸运5官方开奖结果体彩网:Stও❀andard & Poor's (S&P) 500 Index still posted positive returns in all but nine of those calendar years, or three-quarters of the time.