With the recent rally in US Treasuries, a growing number of investors are calling the bond market a bubble. The chart below shows the historical yield on the 10-year US Treasury going back over 50 years. Besides the period in late 2008 and early 2009, yields on the 10-year are at their lowest levels ever.
While yields are at or near record levels on a nominal basis, what is the real yield that investors get after accounting for inflation? To that end, the chart below shows the 10-year yield minus the y/y change in the CPI. Using this method, the adjusted yield on the 10-year (1.62%) is still below its historical average of 2.66%, but nowhere near historical extremes. While one could make the argument that Treasuries are unattractive due to increased supply and their low yields relative to other periods in the past, it is hard to argue that their current valuation fits the criteria for a bubble.
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