Currently, we are using a 10-year Treasury bond yield of 6% as a discount rate.
The higher yield in the underlying assets of funds like EBND are of no help, because EBND is down 1.5% so far in September while the zero yield of the iShares 3-7y US Treasury Bond (IEI) fund is up 0.35% thanks to higher bond prices.
Treasury bond investors got a taste of this last week when the yield on 10-Year Treasury Notes rose more than a quarter of one percent and prices of those bonds fell precipitously.
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Mortgages are bumping along at or near multi-decade lows and a flood of Treasury bond buyers has led to a very appealing yield curve for corporate and government borrowers.
When you buy a corporate bond, you buy it at a price that gives you, over the life of the bond, an incremental yield over the yield on a Treasury of comparable maturity.
Indeed, some weakness in the high-yield market in the second half of March was linked to rising Treasury yields as bond prices declined.
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If you fear rising interest rates and prefer to keep your bond maturities short, the ratio of muni to Treasury yield is actually highest at the short end (140%-261% for one- to five- year triple-AAA paper).
If the intent of QE3 is to lower the yield on the 30-Year U.S. Treasury bond, the Fed has some catching up to do.
The yield on the 10-year Treasury bond fell over the year from 2.29 percent in February of 2012 to 2.11 percent now.
To compensate you for the risks of being a landlord, you should get several points more than the yield on an inflation-protected Treasury bond.
If you compare the yield on conventional bonds with the yield on the index-linked Treasury bond that matures in 2028, the result is an implied inflation rate of 2.4%.
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Bond prices also rose on the prospect of lower rates, with the yield on the ten-year Treasury dipping to 4.99% from 5.04%.
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