Investing When Everything Is Expensive

It's time to revisit the precept of core and explore.

John Rekenthaler 10 November, 2021 | 4:38AM
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No Bond Bargains

Let's start with bonds. The 30-year Treasury bond currently yields 1.95%. Over the trailing 10 years, through Sept. 30, 2021, the Consumer Price Index appreciated an annualized 1.92%. Thus, if inflation over the next three decades were to match the past decade's rate, 30-year Treasury bond owners would realize this side of nothing. They own a parking spot, not an investment.

The standard counterargument is, yes, Treasury bonds are unappealing when looking backward, but the future is what counts. Clearly, Treasury investors expect that inflation will continue to decline, thereby earning them a comfortable real return. Except that is not what they believe. The 30-year break-even inflation rate, which measures investors' aggregate inflation forecasts by comparing yields on nominal and inflation-adjusted bonds (that is, Treasury Inflation-Protected Securities), exceeds 2.3%.

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John Rekenthaler

John Rekenthaler  John Rekenthaler is Vice President of Research for Morningstar.

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