The Bond Yield Has Normalized But No One Is Celebrating

Essential Metrics

The Bond Yield Has Normalized But No One Is Celebrating

Bond yields reflect how investors view the economy’s future. When short-term yields rise above long-term ones—a situation known as an inverted yield curve—it’s often seen as a warning sign of recession. From October 2022 to December 2024, the 3-month to 10-year curve saw its longest inversion in 45 years. Now, long-term yields are falling again. While the curve hasn't inverted this time, the shift is raising fresh concerns for investors.

The previous bond yield inversion was driven by the historic rise in interest rates in response to pandemic-fueled inflation. Investors were hesitant to lock into long-term bonds in case rates continued climbing. As rates began to come back down, hopes grew that the Fed would cut rates again this year. That optimism pushed investors back into 10-year bonds, helping to normalize the yield curve.

Recently, however, the 10-year bond yield has started falling again, coming dangerously close to another inversion. This time, the reasons behind the drop are more troubling. Investors appear to be shifting toward what they see as safer alternatives to U.S. Treasury bonds, including high-quality debt from other countries.

The real estate industry has paid closer attention to the 10-year bond yield ever since the Trump administration signaled it was prioritizing it over the Fed’s benchmark interest rate. At first glance, a drop in 10-year yields might seem like good news for real estate, as it typically lowers mortgage rates—but the cause of the drop may be more reason for concern than for celebration.

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Propmodo Daily is written and edited by Franco Faraudo with contributions from readers like you and the Propmodo team.

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