By: Russ Kamp, Managing Director, Ryan ALM, Inc.

The US 10-year Treasury Note yield is fast approaching 4% (3.9% at 2.39 pm). The last time the yield was at this level was in August 2008. It seems almost certain that we will breach 4% in short order. As the chart below highlights, a 10-year Treasury Note yield above 4% is not rare. In fact, there was a 39-year stretch from 8/19/1963 (I was 4) when the Treasury Note yield broke above 4% until 9/16/2002 when it would next fall below 4%. The yield would once again rise above that level until the Summer of 2008 when the US would last see a 4 in front of the yield for the US 10-year Treasury Note.

The last 14 years have truly clouded our perspective regarding interest rates. We’ve become anchored to the idea that rates are always low, and that the Fed couldn’t possibly raise rates that might jeopardize our economic growth and strong employment. But raise rates they did! Furthermore, they have been incredibly consistent in stating that they will continue to increase the Fed Funds Rate for as long as necessary to get inflation moving down to the Fed’s desired target (2%). We would encourage those who believe that the Fed will raise rates and then immediately drive them back down to let go of that idea. As mentioned above, the yield on the 10-year Treasury Note has spent much more time above 4% than below.