📌 US Treasury Yield Breaks 5.1%, Squeezing US Equity Premium as Institutional Crowding Diverges from High Costs
The US 10-year Treasury yield rose to 5.1% for the first time since 2007, significantly raising the risk-free rate benchmark across the market. The current risk-free yield has reached 5.13%, while the historical annualized return of the S&P 500 excluding dividends typically falls in the 7% to 7.5% range. The sharp narrowing of the spread between the two has driven the US equity risk premium down to multi-year historical lows, meaning that the excess risk compensation investors can earn from holding equities has virtually vanished.
Elevated benchmark interest rates exert direct pressure on asset valuations. Amid the rate-hiking cycle, capital-sensitive individual stocks face significant valuation headwinds. For example, although SoFi demonstrates user growth and platform expansion characteristics, the market still prices it at a discount based on a lender’s valuation logic. The rise in risk-free asset yields objectively weakens the appeal of growth and credit assets.
A more central contradiction in the current market lies in the divergence between allocation behavior and interest rate transmission. Institutional positioning metrics show that large capital continues to crowd into core assets; at the same time, however, both 2-year and 10-year US Treasury yields remain elevated, meaning the funding cost of maintaining high-risk positions on the liability side is growing increasingly expensive. Borrowing and opportunity costs keep climbing while the asset side lacks sufficient risk premium protection, making this disconnect between micro-level crowding and macro costs difficult to sustain over the long term.
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