Summary
Highlights
The video opens by noting that the 'magic number' of 5% for safe and guaranteed fixed income has been reached for long-term Treasuries, with 20- and 30-year Treasuries closing at 5.14% and 5.12% respectively on May 15th, 2026. This has led to speculation and questions about whether Treasury bonds could hit 6%, particularly given a producer price inflation reading of 6%. The discussion will cover interpreting current numbers, finding high-yield rates for portfolio bases, and predicting upcoming Treasury auction yields.
Current long-term Treasury yields are primarily driven by oil prices and their impact on inflation, with oil around $100 per barrel and consumer/producer inflation at 3.8% and 6% year-over-year. Three scenarios for future Treasury yields are presented: 1) Continuation of the current uneasy standoff, keeping oil around $100 and yields slightly higher. 2) Strait of Hormuz reopens, lowering oil prices, easing inflation, and potentially allowing the Fed to lower rates; in this case, locking in current attractive yields might be wise. 3) Everything breaks down, fighting resumes, leading to higher oil prices, increased inflation, Fed rate hikes, and potentially stagflation, favoring shorter maturities, inflation-protected bonds (TIPS, I-bonds), and real assets. The speaker personally believes the first scenario is most likely for the foreseeable future, maintaining their current strategy.
For those laddering Treasuries and Multi-Year Guaranteed Annuities (MYGAs), illustrative MYGA rates are provided. An A++ rated insurance company offers rates up to 5.1% for a 7-year MYGA with a $10 million investment. An A+ rated company offers higher rates, up to 5.25% for a 7-year MYGA with $100,000, albeit with slightly higher risk. A special 6-year MYGA with an A-rated company offers a booster rate of 9.65% for year one and a base rate of 4.65% for years two through six, averaging 5.47% annually. Current Treasury yields show a normalized yield curve where longer maturities yield more, interpreted as a bullish sign for economic growth and some inflation.
Upcoming Treasury auctions include T-bills, a 20-year T-bond, and a 10-year TIPS reopening. The 20-year T-bond has an expected yield of 5.199%. The 10-year TIPS has a coupon of 1.875% and an expected yield of 2.065%, which is higher than its 5-year average real yield and more than double the current I-bond fixed rate. The break-even inflation rate for 10-year TIPS was 2.49%, compared to recent CPI at 3.8% and core inflation at 2.8%. TIPS offer inflation protection but are complex and less liquid than I-bonds, making them suitable for investors willing to understand their nuances.