Author Topic: Why is the 10 year treasury note yield important?  (Read 837 times)

aes421

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Why is the 10 year treasury note yield important?
« on: January 02, 2020, 07:19:07 AM »
I am reading through the investment order guide(https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153) and number 2 says

2. Pay off any debts with interest rates ~5% or more above the current 10-year Treasury note yield.

A quick Google search tells me the 10-year Treasury note yield is 1.89%, so does this mean I should pay off all debt above 6.89%?  What is the significance of the 10-year Treasury note yield?  It's something I've never heard of.


Thanks in advance

YoungInvestor

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Re: Why is the 10 year treasury note yield important?
« Reply #1 on: January 02, 2020, 09:51:01 AM »
It's generally the basis to which the equity risk premium is applied.

I think 5% is somewhat aggressive, personally.

TheAnonOne

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Re: Why is the 10 year treasury note yield important?
« Reply #2 on: January 02, 2020, 10:51:57 AM »
I am reading through the investment order guide(https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153) and number 2 says

2. Pay off any debts with interest rates ~5% or more above the current 10-year Treasury note yield.

A quick Google search tells me the 10-year Treasury note yield is 1.89%, so does this mean I should pay off all debt above 6.89%?  What is the significance of the 10-year Treasury note yield?  It's something I've never heard of.


Thanks in advance

Stocks are basically considered to BEAT inflation by 6-9% annually. Well, if you wanted to pay off debt when inflation is 0 then you are better off investing if the loan is under that 6%

Though, if inflation turns out to be 5% a year in the future, stocks are going to return something like 11-14% annually (but again, only 6-9% real). With inflation at 5% your 5% loan is basically "free" and not worth paying off in this case.


Using the 10 year, is just a vague inflation measurement.