U.S. 10-year Treasury yields have approached 5%, and well-known Wall Street strategist Ed Yardeni believes this level is highly attractive — provided investors remain confident that productivity will drive inflation lower.
In an interview with Bloomberg Television, Yardeni said, "To buy 10-year Treasuries at a 5% yield, you need to be relatively optimistic that productivity will push inflation down, and I think that judgment will hold." He stated bluntly that the current yield level near 5% is "very attractive." At the same time, he expects the inflation midpoint over the next decade to be around 2% to 2.5%, corresponding to a real return of roughly 2.5%, which he considers "actually quite good" in the bond market.
Yardeni's comments came as U.S. Treasuries rose for a second consecutive trading day. Driving this rally was the outcome of the U.S. midterm elections, where Democrats swept to victory — the market widely expects this will serve as a check on the Trump administration's tax cut and spending plans, thereby dampening expectations of expanded bond supply. Boosted by this, yields across all maturities fell by at least 4 basis points, with the 10-year benchmark yield dropping to 4.87%, the lowest since September 10.
Rates Return to "Normalization," Yield Range Expected at 4% to 5%
Yardeni earned his reputation on Wall Street for promoting the "Fed model" framework, which compares the S&P 500's forward earnings yield against the 10-year Treasury yield to gauge equity valuations. He judges that current rate levels have "returned to a more normal state of longer duration."
In his view, the 10-year Treasury yield will trade within a 4% to 5% range, a band closer to historical levels before the global financial crisis, meaning the era of ultra-low interest rates is over and the bond market has entered a new pricing benchmark.
Productivity Is the Key Variable, Inflation Outlook Relatively Benign
The core logic behind Yardeni's view lies in his optimistic assessment of productivity. He believes that sustained productivity gains will be the main force suppressing inflation and will provide positive support for real interest rates.
He expects inflation to remain roughly between 2% and 2.5% over the next decade, and if yields stay near 5%, real returns could reach around 2.5%. This combination places the current risk-reward ratio for Treasuries in a historically reasonable range, offering substantive appeal to investors seeking certainty of returns.
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