Am I really being compensated for 30y treasuries at 3.1 when most banks offer 1yr CDs at 2.5? I don't know what percentage compensates for time, but 0.5% doesn't seem like it.
The flat yield curve tells me that the bond market, which is generally smarter than the stock market, anticipates a recession in which the Fed will have to cut rates rather than raise them, or will engage in other QE. Long-term bonds' yields are not rising because buyers are counting on appreciation when the Fed is forced to give up its plans for normalization. Stocks will be on sale at about that time.
I'm a nutshell, it's a risky environment to be either a stock holder or someone dependent on fixed income, due to high multiples and low yields, respectively. Yet we're somewhat used to this, so it doesn't seem like a big deal. At some point in the next 2-3 years, the equity market is likely to give up multiple years of its gains. We all know this except for the people who think an S&P PE ratio of 25 to 30 is the new normal because this time is different.
On the bright side, volatility is currently very low (VIX near 12), especially considering the 0.23% and falling yield spread between 2 and 10 year treasuries. This means you can buy option-protected positions (protective puts, collars, or calls & cash), some for the price of 2 - 3% per year or less, stay invested in 100% equities with very little remaining risk, and have lots of dry powder in the event of a correction, when you trade your hedges for shares. It's like buying insurance on sale as a hurricane might be approaching.
Cheap options don't help retirees who need a steady payout, but I think they should eliminate any temptations to buy treasuries or TIPS for portfolio protection. I'm 100% stocks, bearish, and hedged.