Much Higher

I have a picture
Pinned to my wall
An image of you and of me
And we're laughing
We're loving it all
--Thompson Twins

Yesterday 10 yr Treasury yields closed back above 3%. As long duration yields rise, I've been pondering just how high they would need to be before I was a serious bond buyer.

My answer is, "Much higher."

For me, fixed income competes with dividend-paying stocks. Currently I can put together a portfolio of dividend paying stocks that pays a 3% or more in cash annually. 

Plus, those dividend yields are likely to increase over time. If yields increased 5% annually (not far from historical averages for many dividend payers), then a stock that pays $5/share annually in dividends this year will be paying more than $8/share ten years from now. 

There is also the potential for share price appreciation. These features are especially attractive to hedge against inflationary pressures like we have now.

Bonds simply do not offer the same risk/reward profile--at least at current levels.

Where would 10 yr Treasury yields need to be for me to consider them? Maybe 10% or more to compensate for the risks and opportunity costs of foregoing dividend-paying stocks.

It should be noted that these levels would approximate T-notes yields in the early 80s when the last bond bull market began.