US 30-year bond yield tops 5.30% and challenges stocks

The 30-year US bond tops 5.30% and puts stocks on the ropes

The yield on the 30-year Treasury bond has climbed above 5.30%, a level that reopens an old question: if the world's most powerful government pays you more than 5% a year without lifting a finger, why risk your savings in the stock market casino?

The truth is that 5.3% is no historical oddity. Between 1971 and 2004, the long-term US bond typically traded above that threshold. It was the 2012-2021 period, with yields of just 2-3%, that was the anomaly. The question now is whether this return to normal has further to go or whether the party is over again.

The risks the coupon doesn't tell you about

Forewarned is forearmed: fixed income is not risk-free. If inflation were to spike, the real return would evaporate. And if US debt keeps deteriorating, the bond could climb to 6%, causing losses for anyone buying today. European investors, moreover, also carry currency risk.

The opposite strategy is summed up by those who have already done it: buy a 20-year bond via an ETF with a 5.26% coupon and wait for the Federal Reserve to cut rates when something breaks. If that happens, the capital gain could approach 15% in a short time. The key is knowing when to buy: from Spain, ETFs are the natural route.

The emperor has no clothes, one of the analyses said. It may be right, but for anyone waiting for it to dress better, the margin is narrowing. Stocks will have to justify every extra point of return with the 5.30% on bonds as a direct competitor.