• 10-Year Treasury Rate: As of the time of this response (January 19, 2025), the 10-year Treasury rate is around 4.61%. This data can be found on financial data providers like Bloomberg, Refinitiv, or the U.S. Treasury website.

• Inflation Rate: The current annual inflation rate (as of January 19, 2025) is 3.21%. This data can be found on the Bureau of Labor Statistics (BLS) website.

• Real Rate of Return:

  • Calculation: Real Rate of Return = Nominal Rate – Inflation Rate
  • Calculation: 4.61% (Nominal Rate) – 3.21% (Inflation Rate) =

    1.40%

• After-Tax Real Rate of Return:

  • The after-tax real rate of return depends on the investor’s individual tax bracket.
  • Example: Assuming a 25% marginal tax rate:
    • After-tax nominal return: 4.61% * (1 – 0.25) = 3.46%
    • After-tax real return: 3.46% – 3.21% = 0.25%

Impact on Investor Risk Appetite:

A low real rate of return on a traditionally safe investment like 10-year Treasuries can significantly impact investors’ risk appetite.

• Increased Risk-Taking: With low returns on safer investments, investors may be more inclined to take on higher levels of risk to achieve their desired returns. This could lead to increased allocations to equities, corporate bonds, or other higher-yielding assets.
• Reduced Savings Rates: Low real returns on savings accounts and other low-risk investments can discourage saving and encourage increased spending.
• Increased Demand for Riskier Assets: The search for higher yields can drive demand for riskier assets, potentially inflating asset bubbles in certain sectors. ¹  
  1. How Should Central Banks Respond to Asset-Price Bubbles? The ‘Lean’ versus ‘Clean’ Debate After the GFC | Bulletin – June 2011 | RBA

  

  www.rba.gov.au

Disclaimer:

• These figures are subject to change.
• This analysis does not constitute financial advice.
• Investors should consult with a qualified financial advisor to determine the appropriate investment strategy for their individual circumstances.