Ed Yardeni, president of Yardeni Research, believes that with inflation expected to ease, a 10-year U.S. Treasury yield around the 5% level is "extremely attractive."
In an interview, Yardeni said: "To buy 10-year Treasuries at a 5% yield, you need to have some optimism that productivity will bring inflation down, and I think that will happen. The 5% level is very attractive."
His remarks came as U.S. Treasuries rose for a second consecutive trading session. A decisive Democratic victory in the midterm elections led the market to expect that the Trump administration's tax and spending plans could be constrained, driving the bond market higher.
Yields across all maturities in the world's largest bond market fell by at least 4 basis points, with the benchmark 10-year Treasury yield dropping to 4.84%, its lowest level since September 10.
Yardeni is a well-known Wall Street strategist, famous for promoting the "Fed model" for stock valuation, which compares the S&P 500's expected earnings yield with the 10-year Treasury yield. He said interest rates have now returned to a "higher for longer" regime.
He stated: "Over the next decade, inflation will most likely fall in the 2% to 2.5% range. At the same time, if you can get a 2.5% real yield, that is already quite good in the bond market."
He predicts the 10-year Treasury yield will fluctuate in the 4%–5% range, a band that is closer to the pre-global financial crisis normal.
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