r vs g: Why We're Still Cautious on Long Bonds
By Mark Basola, CFA | AFE Private Wealth
There's an old rule of thumb in fixed income: the 10-year Treasury yield should roughly track nominal GDP growth.
The logic is simple. Nominal GDP growth (real growth plus inflation) is a rough measure of what capital earns across the economy. Someone lending money to the government for ten years should expect to earn at least that. When the 10-year yield (r) sits below nominal growth (g), lenders are underpaid and borrowers come out ahead. When r rises above g, the math flips in the lender's favor.
Here's where it stands today:
- r = 5.28% (10-year Treasury yield, October 2, 2026)
- g = 6.3% (nominal GDP, Q2 2026 vs. Q2 2025)
r is about a point below g. By this rule, long-dated Treasuries are still priced expensively relative to the economy they're lending to.
That isn't new. Since 2000, r has been below g in 21 of 26 years.
Source: U.S. Bureau of Economic Analysis; Board of Governors of the Federal Reserve System (H.15). Retrieved from FRED, Federal Reserve Bank of St. Louis, October 6, 2026. Nominal GDP growth is the annual percent change in GDP (series GDPA). 10-year yield is the annual average of daily 10-Year Treasury Constant Maturity yields (series RIFLGFCY10NA).
The only years r beat g were 2001, 2002, 2008, 2009, and 2020. Every one of those was a recession or close to it. In each case growth collapsed while yields held relatively steady.
Before 2008, the gap averaged about half a point. Since 2008, it has averaged about 1.6 points. Quantitative easing, near-zero policy rates, and regulations pushing banks and insurers into Treasuries held yields down for more than a decade. In 2021 and 2022, inflation pushed nominal growth to 11% and 10% while the 10-year sat between 1.5% and 3%.
There's a name for running yields below growth: financial repression. It's one of the ways governments shrink debt without cutting spending or raising taxes. When nominal growth outpaces the interest rate, the economy grows faster than the debt compounds, and debt-to-GDP falls.
That matters with federal debt near $40 trillion. In August, President Trump said the way to handle the debt is through growth. For debt-to-GDP, nominal growth is what counts, and nominal growth includes inflation. If policymakers lean on that lever, r below g could stay the norm for a long time. Bondholders would be the ones absorbing the cost.
The counterpoint deserves a fair hearing: the gap is closing. It was -9.7 points in 2021, -6.7 in 2022, -2.8 in 2023, -1.4 in 2024, and -0.7 in 2025. That trend is behind the calls for bonds I've started seeing on X. If yields keep rising toward nominal growth, or growth cools, the case for owning duration gets stronger.
We're not there yet. We remain cautious on long-duration Treasuries. TIPS are interesting, and we'll keep weighing that tradeoff as the gap moves.
One last point. A rule of thumb is a starting point. Bonds do jobs in a portfolio that this rule doesn't measure, like providing liquidity and cushioning a portfolio when stocks fall. The right mix depends on the person, their timeline, and what they need the money to do.
Sources: U.S. Bureau of Economic Analysis, Gross Domestic Product (GDPA, GDP); Board of Governors of the Federal Reserve System, H.15 Selected Interest Rates (DGS10, RIFLGFCY10NA), via FRED, Federal Reserve Bank of St. Louis; U.S. Department of the Treasury, Debt to the Penny.