The Treasury Problem

Treasury bonds currently face stiff competition from alternative asset classes as the 10-year yield hovers around 4.75% to 4.80%. While this yield now matches the S&P 500's forward earnings yield, equities remain more attractive to many investors because their earnings can grow, whereas bond coupons remain fixed. Meanwhile, cash has evolved from a simple "parking space" into a strategic allocation, with nearly $8 trillion sitting in money market funds earning approximately 3.65% with full liquidity. For those seeking higher returns, direct lending offers a significant yield premium at roughly 9.50%, though this comes at the cost of increased credit and illiquidity risk. Ultimately, despite rising yields, Treasuries have yet to trigger a massive rotation of capital because they lack the growth potential of stocks, the liquidity of cash, or the high-income profile of private credit.