The Ten-Year Rose 392 Basis Points Since 2021. The Real Yield Rose 395.

On September 23, 2026, the ten-year Treasury par yield closed at 5.11%.¹ The ten-year TIPS real yield closed at 2.76%.² The gap between them, 2.35 percentage points, is the inflation compensation priced into the nominal note over the next decade.

Five years ago the ten-year yielded 1.19%. The move since then is 392 basis points. Almost every one of them came from the real yield, which rose 395 basis points over the same span, from negative 1.19% to positive 2.76%. Inflation compensation went from 2.38% to 2.35%, a change of three basis points in the other direction.

That composition matters more than the 5% headline. A nominal yield can climb because investors expect more inflation or because they demand a higher return above inflation, and those two routes do very different things to the return a stock has to deliver before it beats the bond. The repricing of the past five years took the second route almost exclusively.

Two ways a ten-year yield can reach 5%

A nominal Treasury yield decomposes into a real yield and inflation compensation. Treasury publishes both curves every business day, so the split can be read off market prices without a separate macroeconomic forecast. Neither leg is a raw quote: each is a par curve fitted by monotone convex spline to indicative bid-side quotations, and Treasury is explicit that its method “provides a par yield for a 10-year maturity, for example, even if no outstanding security has exactly 10 years remaining to maturity.”³The decomposition inherits the fitting method of both curves.

Suppose the ten-year sits at 5% with 4 points of inflation compensation and a 1% real yield. Now suppose it sits at 5% with 2 points of inflation compensation and a 3% real yield. Same quoted yield, same coupon, same headline. The hurdle facing equities is not the same in the two cases.

Corporate revenue and earnings are nominal quantities. Over long horizons they scale roughly with the price level, because firms sell goods at prices that rise with inflation and hold assets whose replacement cost rises too. When expected inflation goes up by a percentage point, the discount rate applied to a stock rises by about a point and the expected nominal cash flows rise by about a point as well. The two largely cancel. In purchasing-power terms the bar a stock has to clear barely moved.

A rise in the real yield carries no such automatic offset. Inflation compensation is unchanged, so nothing about the price level lifts expected nominal cash flows, and the rate those cash flows get discounted at went up anyway. Hold expected real cash flows fixed and present values fall, in every unit of measurement.

That qualifier matters enough to state up front rather than bury. Real yields can rise because expected real growth improved, and in that case expected corporate cash flows rise alongside the discount rate. The decomposition establishes that the safe real return available to an investor went up. Whether the bar facing equities went up by as much depends on what happened to the numerator at the same time, which this data does not say.

The arithmetic is unforgiving on long-dated cash flows. A dollar arriving in ten years is worth 61 cents at a 5% discount rate and 46 cents at 8%. Nothing about the business changed between those two numbers.

What actually moved since 2003

Treasury has published a fitted real curve since January 2, 2003. Across the 5,936 sessions where both curves exist, today’s 2.76% ten-year real yield sits above 99.4% of them. The only higher readings are 33 sessions in 2007 and 2008.² That ranking carries a margin of error, because the series splices three construction methods and every reading above today’s predates both the December 2008 change in which TIPS anchor the real curve and the December 2021 move to a monotone convex spline. Treasury puts the average effect of the 2021 change on real constant-maturity rates between 0.6 and 2.7 basis points, with a standard deviation as wide as 4.1.³ That is small against a 395 basis point move and not small against the gaps separating nearby sessions in a percentile table.

Those 2008 readings deserve a caveat rather than a victory lap. The series peaks at 3.15% on November 21, 2008, in the middle of a period the BIS attributes substantially to something other than changed views on real rates. Reviewing the same episode, it points to a liquidity premium on index-linked bonds that “probably increased considerably” as the crisis deepened, and to “sell-side pressures from leveraged investors that were forced to unwind inflation-linked bond positions in adverse market conditions, which in turn resulted in rising real yields.”⁴Reading that spike as the market demanding a 3.15% real return credits all of it to a cause that carried only part. Setting it aside, today’s real yield is the highest of the post-crisis period by a clear margin.

Year by year, the split between the two components moves around a great deal. Measured on month-end closes, so that every figure below can be checked in the explorer, 2009 ran the other way entirely: the nominal ten-year rose 160 basis points while the real yield fell 66, as inflation compensation recovered from its crisis collapse. 2021 was almost purely an inflation story, with the nominal yield up 59 basis points and the real yield up two.

Against that history, the past five years stand out for how little of the move was about inflation. 2022 moved the real ten-year 262 basis points while the nominal yield rose 236, so inflation compensation fell over the year. 2026 to date has added another 83, taking the nominal yield up 93 basis points from its 2025 close while inflation compensation contributed ten.

Try it: the rate-move decomposer

Pick any two dates since 2003 and see how the move between them splits. The presets cover the 2021 trough, the end of 2021, and the end of 2025.

Two readings are worth trying. Set the window to 2003 through 2007 and the split is near even. Set it to the 2021 trough through today and the real share exceeds 100%, because inflation compensation moved slightly the other way.

Why the composition changes the equity hurdle

One caveat on the word hurdle before going further. The right risk-free benchmark depends on the horizon being funded and on the account it sits in, so a ten-year real yield is a reference point rather than a single number every investor and every asset must clear. An investor choosing between a ten-year Treasury and a stock portfolio is comparing a known nominal cash flow to an unknown one. The premium equities are expected to deliver over the safe asset is the compensation for taking that uncertainty, and it is an expectation rather than a promise.

When the whole rise in a nominal yield is inflation compensation, an equity investor is roughly indifferent on the arithmetic above. Both sides of the comparison inflated. When the rise is real, the safe asset genuinely got better in purchasing-power terms and the stock did not.

In August 2021, a ten-year TIPS bought at a negative 1.19% real yield was a contract to lose purchasing power slowly, held to maturity and before tax. An investor who needed real growth had to take risk to get it. At 2.76%, the same ten-year instrument converts roughly 31% more purchasing power over its life, with no earnings risk and no valuation risk for a holder who keeps it to maturity.

Two limits on that comparison. The lock runs for ten years and then ends. Treasury issues TIPS at five, ten and thirty years, so holding a ten-year to maturity leaves the reinvestment of both coupons and principal at whatever real rates prevail then.⁵ For scale, 2.76% sustained would double purchasing power in about 26 years, but a ten-year TIPS does not itself lock that rate for 26 years. And the yield is quoted before tax and against non-seasonally adjusted CPI-U; in a taxable account the annual inflation adjustment to principal is federally taxable in the year it accrues, before the cash arrives, though TIPS are exempt from state and local income tax. The TIPS ladder guide works through both.

This is why the same 5% headline would have meant something different in a higher-inflation world. The number on the screen is the same. What sits underneath it is not.

What the implied premium did while rates rose

Aswath Damodaran estimates a forward-looking equity risk premium each month by solving for the discount rate that sets the present value of expected S&P 500 cash flows equal to the index level. It is an internal rate of return on the index, conditional on his cash-flow and growth assumptions.

On September 1, 2026 he published an implied premium of 4.14% on his headline measure, the trailing-twelve-month variant with an adjusted payout ratio, against a risk-free rate of 4.75%.⁶ The 4.75% is Treasury’s ten-year close on August 31, the last trading day of the prior month, which is the convention he uses throughout the series.

Two cautions about combining that number with anything else. First, his published expected return on stocks for that date is 8.84%, which is built from a different variant of the premium: 4.09%, the trailing-twelve-month measure without the payout adjustment, plus the 4.75% risk-free rate. Adding 4.14% to 4.75% produces 8.89%, a number he does not publish. Second, the risk-free rate is an input to the valuation that generates the premium, so a September 1 premium cannot be stapled onto a September 23 bond yield. By September 23 the ten-year had risen to 5.11%, and the model would have to be rerun on contemporaneous prices to say what the premium was then.

The month-by-month series through 2026 shows how the premium behaved as rates climbed.⁷ His risk-free input rose from 4.18% in January to 4.75% in September, a gain of 57 basis points. His headline premium went from 4.18% to 4.14%. The implied expected return on stocks rose from 8.41% to 8.84%.

In his model the risk-free rate rose while the implied premium held, so the modeled expected return on equities rose with it. An investor buying the index in September 2026 was being offered a higher expected nominal return than in January, with essentially the same compensation for equity risk on top of a higher base. The implied premium is solved jointly from the index level, the cash flows and the growth assumption, so comparing two months of headline output does not isolate which of those moved.

For context on the level, Damodaran’s own average implied premium over 1960 through 2025 is 4.25%, and the last decade averaged 5.08%.⁸ The current 4.14% is modestly below both. It is nowhere near the 2.05% low of 1999, and well below the 6.45% high of 1979.

Where the mechanism breaks

The cash-flow argument above is a statement about long-horizon arithmetic, and it describes short-run returns badly.

Equities have historically been a poor hedge against inflation surprises over horizons of a year or two. When an inflation shock arrives, stocks have tended to fall rather than rise with the price level, because the discount rate reprices immediately while the cash-flow pass-through takes years and is incomplete. The cancellation described above is an artifact of the present-value algebra, and it predicts the next four quarters of returns poorly. We covered the measurement problem in inflation beta is not one number.

Two further limits are worth stating plainly. The gap between the nominal and real curves is inflation compensation. The Federal Reserve’s own documentation of its TIPS curve says the spread also carries an inflation risk premium and the effect of TIPS trading far more thinly than nominal Treasuries.⁹ A breakeven is a price, and prices carry risk premia alongside expectations.

And a rise in the real yield does not have a single cause. Real rates can rise because expected growth improved, which would raise expected corporate cash flows alongside the discount rate, or because the supply of duration grew, or because investors demand more term compensation. Which of those drove it changes what the move implies for equities, and two yield curves cannot distinguish between them. The term-premium decomposition splits a nominal yield along a different axis and is the natural companion to this one.

What this does and does not tell you

It does not tell you that bonds will beat stocks over the next decade, and it is not a signal to trade on. The most thorough assessment of the return-predictability literature found that more than a third of the predictors published since 2008 lose statistical significance even in-sample, and half of the survivors fail out of sample.¹⁰ Treasury yields are among the exceptions: Goyal, Welch and Zafirov call the T-bill yield and the long-term yield their best monthly predictors, and report that higher fixed-income yields predict lower equity premiums, which points the same way this article does. What that did not survive was implementation. Neither variable let any of their four investment strategies beat holding equities throughout, and both lost money outright in the attempt. Every yield variable they test is a nominal one, so the paper bears on the direction of this argument without testing real yields themselves.

It does not tell you to sell equities. A higher hurdle is not a prediction that the hurdle will go uncleared. Damodaran’s implied premium is still positive and close to its long-run average, and ex-US and small-value equities trade at materially lower multiples than US large caps, which is a different opportunity set from the one the headline index describes.

What it does tell you is that the opportunity cost of risk has changed in real terms, and that any plan built on a near-zero real baseline is now priced against a different alternative. A portfolio built when the safe real rate was negative 1% is now measured against a different benchmark, which is worth a deliberate look rather than an automatic one.

The practical consequence is narrower than it sounds. An investor holding equities for growth expected over decades faces a higher bar at a 2.76% real Treasury, with the reason for holding them intact. Anyone who held equities because safe assets offered nothing has lost that reason, and the hurdle-rate framework is the place to work out what clears at today’s baseline. A dated liability is a different problem again, and a TIPS ladder now prices that liability at a real yield unavailable for most of the past twenty years.

Bottom Line

The ten-year Treasury yields 5.11% because the real yield is 2.76%. Inflation compensation is almost exactly where it was five years ago. What repriced was the return available above inflation without taking risk, which is the component that improves the safe alternative in purchasing-power terms. All else equal that raises the bar for every risky asset. Whether it did depends on what happened to expected growth over the same five years, which these two curves do not record.

Key Takeaways

• The ten-year rose 392 basis points from its 2021 trough and the real yield rose 395. Inflation compensation went from 2.38% to 2.35% over the same span, as of September 23, 2026.
• An inflation-driven rise in yields and a real-rate-driven rise are different events for a stockholder. The first raises the discount rate and expected nominal cash flows together. The second raises the discount rate with no offset from the price level, though it can still coincide with better growth expectations.
• A 2.76% ten-year real yield is above 99.4% of sessions since Treasury began publishing the real curve in 2003. The 33 higher readings are all from 2007 and 2008, most of them during a forced-selling episode in TIPS, and all under earlier curve construction methods, so treat the ranking as approximate.
• Damodaran’s implied equity risk premium barely moved while the risk-free rate rose 57 basis points during 2026. His implied expected return on stocks went from 8.41% in January to 8.84% in September, so the higher rate showed up as a higher modeled expected return rather than a compressed premium.
• None of this forecasts the next decade’s relative returns. It describes what the safe alternative now pays in purchasing-power terms, which is an input to a plan rather than a trading signal.

Frequently Asked Questions

What is the difference between a nominal and a real Treasury yield?

A nominal yield is the return in dollars. A real yield is the return in purchasing power, quoted directly by Treasury Inflation-Protected Securities, whose principal adjusts with CPI. On September 23, 2026 the ten-year nominal yield was 5.11% and the ten-year real yield was 2.76%. Compare nominal figures with nominal figures and real with real; mixing them is the most common error in this area.

Does a 5% ten-year Treasury guarantee a 5% return?

Holding a Treasury note to maturity makes the cash flows highly predictable, but the quoted yield to maturity is an internal rate of return that assumes coupons are reinvested at the same rate. Rates move, so the realized compound return generally differs. Selling before maturity introduces price risk, and a constant-duration bond fund never matures at all. A zero-coupon STRIP comes closest to the textbook idea of locking in a nominal return, because there are no coupons to reinvest. What that return keeps after tax and inflation is worked through in Is a 5% Treasury Yield Too Good to Be True?.

Is a 2.76% real yield high by historical standards?

Within the published series it is near the top: above 99.4% of sessions since January 2003. That series is short, covering roughly one full interest-rate cycle plus the zero-rate decade, so it is a statement about the TIPS era rather than about the long sweep of history. It also splices three curve construction methods, which is another reason to read the percentile loosely. Estimates of real rates put them higher in the early 1980s, but TIPS did not exist then, so those are model-implied or ex-post figures rather than the same quoted series.

Why did inflation compensation barely move while inflation itself was high?

Ten-year breakeven inflation prices average inflation over the coming decade, and today’s inflation rate barely enters it. It stayed near 2.3% through the 2021 and 2022 inflation episode, which is usually read as the market expecting the shock to be temporary. Because the spread also carries an inflation risk premium and a liquidity difference between TIPS and nominal Treasuries, a stable breakeven is not proof of stable inflation expectations on its own.

Should I move from stocks to bonds now that real yields are higher?

That depends on what the money is for rather than on which asset is expected to win. A dated liability, such as a known sum needed in ten years, can be matched directly with TIPS at a real yield that was not available for most of the past two decades. An open-ended goal decades away is a different problem, and swapping a diversified equity portfolio for Treasuries because today’s yield looks attractive trades one risk for another.

How does Damodaran calculate the implied equity risk premium?

He grows the trailing twelve months of cash returned to shareholders, dividends plus buybacks, at an expected growth rate for five years, then at a perpetual rate thereafter, and solves for the discount rate that makes the present value equal the current index level. Subtracting the risk-free rate gives the premium. The answer is sensitive to the growth assumption, which is why he publishes five variants that ranged from 3.56% to 6.05% for the same September 2026 date.

Related Guides

• Will Government Bonds Blow Up? applies the same split to the 2026 sell-off and asks whether it reflects fears about government debt.
• Why Stocks Can Rise When Interest Rates Rise for 64 years of monthly data on stock returns and yield changes, and Fed-announcement evidence on why the sign changes.
• The Risk-Free Rate Is Your Hurdle Rate for how to turn a real yield into a baseline every investment has to clear, including the maturity-matching and after-tax adjustments.
• How Much of a Ten-Year Treasury Yield Is Risk Compensation? for a different split of the same yield, into expected short rates and the compensation for holding duration.
• Inflation Beta Is Not One Number for why equities hedge inflation poorly over short horizons even though their cash flows are nominal.
• Stocks Usually Win. “Usually” Is Not a Financial Plan. for the multi-decade stretches in which bonds matched or beat equities.
• Is Locking In Today’s TIPS Yields Market Timing? for why acting on an observable real yield differs from acting on a forecast.
• Do Stock Valuations Still Matter? for the other half of the expected-return question, and the excess CAPE yield that pairs a valuation with a real Treasury yield.
• Do Higher Interest Rates Cause Inflation? for what the identified-shock evidence says a rate hike does to inflation, and the housing channels that run the other way.

Sources

1. U.S. Department of the Treasury, “Daily Treasury Par Yield Curve Rates,” ten-year constant maturity, January 2, 2003 through September 23, 2026. Public domain. All nominal yield figures and the calendar-year decomposition above are computed from this file and its real-curve counterpart. home.treasury.gov
2. U.S. Department of the Treasury, “Daily Treasury Par Real Yield Curve Rates,” ten-year constant maturity, January 2, 2003 through September 23, 2026. Public domain. Source of the 2.76% real yield, the 99.4th-percentile figure over 5,936 sessions, the negative 1.19% trough on August 3, 2021, and the 3.15% peak on November 21, 2008. The series spans three curve construction methods, so the percentile is approximate. home.treasury.gov
3. U.S. Department of the Treasury, “Treasury Yield Curve Methodology” and the series-break footnotes on the daily rate pages. Source of the statement that par yields are derived from indicative bid-side quotations rather than actual transactions and that the method yields a ten-year point even when no security has exactly ten years remaining; of the December 6, 2021 replacement of the quasi-cubic Hermite spline by the monotone convex spline; of the December 1, 2008 change to using the most recently auctioned TIPS as knot points on the real curve; and of the 0.6 to 2.7 basis point average effect of the 2021 change on real constant-maturity rates. Treasury publishes no separate methodology page for the real curve; its method is documented in the real-curve footnotes and the change information sheet. home.treasury.gov
4. Bank for International Settlements, “Disentangling the drivers of recent shifts in break-even inflation rates,” BIS Quarterly Review, March 2009, pp. 10–11. Source of the liquidity premium and forced-unwinding account of the late-2008 move in real yields. The BIS frames these as probable and partial contributors rather than the whole explanation. bis.org
5. TreasuryDirect, “Treasury Inflation-Protected Securities (TIPS).” Source of the five, ten and thirty year issuance maturities, the CPI adjustment to principal, and the federal tax treatment of the annual inflation adjustment alongside the state and local exemption. treasurydirect.gov
6. Aswath Damodaran, NYU Stern, implied equity risk premium for September 1, 2026: 4.14% on the trailing-twelve-month measure with adjusted payout, 4.09% on the trailing-twelve-month cash yield, against a 4.75% US Treasury risk-free rate. pages.stern.nyu.edu
7. Aswath Damodaran, “Implied ERP by month,” ERPbymonth.xlsx, historical ERP sheet. Source of the 2026 month-by-month series: risk-free rate 4.18% in January rising to 4.75% in September, headline premium 4.18% falling to 4.14%, and implied expected return on stocks 8.41% rising to 8.84%. pages.stern.nyu.edu
8. Aswath Damodaran, “Historical Implied Equity Risk Premiums,” histimpl.xls. Source of the 4.25% average implied premium for 1960 through 2025, the 5.08% last-decade average, the 6.45% high in 1979 and the 2.05% low in 1999. pages.stern.nyu.edu
9. Refet S. Gürkaynak, Brian Sack and Jonathan H. Wright, “The TIPS Yield Curve and Inflation Compensation,” Federal Reserve Board. Source of the statement that breakeven rates incorporate inflation risk premiums and the effects of differential liquidity between TIPS and nominal securities, and so should not be interpreted as estimates of inflation expectations. federalreserve.gov
10. Amit Goyal, Ivo Welch and Athanasse Zafirov, “A Comprehensive 2022 Look at the Empirical Performance of Equity Premium Prediction,” Review of Financial Studies 37(11), November 2024, pp. 3490–3557. Updates Welch and Goyal (2008); finds that more than a third of 29 variables published after 2008 lose in-sample significance and half of the remainder perform poorly out of sample. doi.org

Author disclosure

I have no relationship with the U.S. Treasury, NYU Stern, or any issuer mentioned. I hold both equities and Treasury inflation-protected securities in my own accounts, so I am not a disinterested party on the question of whether real yields are attractive. Every yield figure above is computed from Treasury’s two published daily curves by scripts/extract_real_nominal_yields.py in the Summitward repository, which prints each quoted number on every run. The decomposition uses month-end observations plus the latest session and the two real-yield extremes, so intramonth swings between those points are not visible in the explorer. Yields move daily and every level quoted here is as of the close on September 23, 2026, and will be stale soon after. The implied equity risk premium figures are Damodaran’s estimates under his own assumptions about cash flows and growth. Nothing here is investment advice.