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Beyond the 10-year maturity, the slope of the yield curve actually flattened out, with the difference between the 30-year rate and the 10-year rate declining by 0.34%. Note that the decrease in default spreads, at least for the lower ratings, mirrors the drop in the implied equity riskpremium during the course of 2021.
for the year are at war with its concurrent promise to keep rates low; after all, adding those numbers up yields a intrinsic riskfreerate of 8.7%. The Stocks Story As treasury rates have risen in 2021, equity markets have been surprisingly resilient, with stocks up during the first three months.
In a post at the start of 2021 , I argued that while stocks entered the year at elevated levels, especially on historic metrics (such as PE ratios), they were priced to deliver reasonable returns, relative to very low riskfreerates (with the treasury bond rate at 0.93% at the start of 2021).
Interest Rates : The most direct link between inflation and equity value is through the riskfreerate (interest rate) that forms the base for the expected returns that investors demand for investing in a company's equity, and for lending it money.
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