Heading into 2014, when the yield on the 10-year US Treasury was sitting right at 3%, economists were forecasting rates to rise to 3.38% by year end. While there are still more than seven months left in 2014, the conventional wisdom for 2014 couldn't have been more wrong. Just as the Fed started to taper the amount of its monthly fixed income asset purchases, treasury yields once again stopped rising and began to fall.
With the Fed now nearly cutting its monthly asset purchases in half, the yield on the 10-year is at 2.54% this morning, which is the lowest level in more than six months. As a result, even though the S&P 500 is trading right at or near all-time highs, equity returns are eating the dust of Treasuries year to date. The chart below shows the total return of long-term US treasuries (BofA Merrill 10+ Year Treasury Index) so far in 2014 to the total return of the S&P 500 (through 5/13). With a gain of 9.58% so far this year, the total return of long-term treasuries is nearly triple the return of the S&P 500! Keep in mind too, that these figures don't even take today's big rally in treasuries and the decline in equities into account.
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