The two main risks remain concentration risk and term premium risk.
Yurian argues we are in an era of fiscal dominance where rate scares replace growth scares, and the risk is that yields rise from here, making bonds more correlated with equities and raising the hurdle rate for stocks. ✦ AI generated
Yurian Timmer · The Compound · 2026-07-20 · original ↗
starts at this moment · 9:33
“From my perspective the two main risks remain concentration risk and term premium risk. I just want to hear you explain where that risk resides here.”
We're in an era of fiscal dominance. When we get a scare, it's a rate scare, not a growth scare. The term premium is about 69 basis points. The risk is that yields might go up from here. If the yield on the bond were to go from four and a half to five, the stock market needs to compete with that by lowering its PE or raising its yield.
verbatim transcript · starts at 9:33
9:33that's in your newsletter. You stated from my perspective the two main risks remain concentration risk and term premium risk. Um I just want to hear you explain like where that risk resides here. Um so I I've heard a lot of people in recent months uh clients that we have in pundits saying that uh we're concerned about bonds here, right? There's sticky high inflation, high government debt levels, high deficits.
9:56People are worried that, you know, that that's not a good because most people don't realize that inflation is a bigger risk for bonds than rates, right? Rising rates aren't great for bonds, but eventually you get the higher yields. It's the inflation that is the big piece because those nominal dollars are getting paid back in. Um, I guess my only push back to that would be that yields are higher than at basically any
10:15point they've been at since 2008. Around there, you know, you're getting four to 5% in high in high quality bonds. Uh, investors in the 2010s would have killed for that. Uh so I'm just curious where you come at from the yield side of things and then we can talk about more about the concentration as well. >> Yeah. So my my take on on interest rates um is that we're in an era of fiscal
10:35dominance and fiscal policy dominates as the as the name would imply. Um, and we're, you know, we're no longer in the era where the main concern in a 6040 type portfolio are growth scares or growth shocks, right? Think about the GFC. That was a growth shock. COVID was a growth shock. Uh and in between those two episodes, we had obviously zero interest rate policy, financial repression, quantitative easing. But but
11:07the whenever there was a shock to the system, it was a deflationary growth shock. Now we're on the other side and when we get a shock and and shock is a big word. Um but when we get a scare, it's it's a rate scare, not a growth scare. So 2022, of course, was was the the the initiation of that. uh rates reset around the world. Um and since
11:29that time, we've had a few minor little growth scares and that would push the 10-year down slightly below four, but like holding a beach ball underwater, it never stayed there very long because we're now in a fiscally dominant era and potentially in a structurally more inflationary era. We all know that inflation went from two to nine uh during COVID and it's back down to three, but it's not down to two. And
- ·We are in an era of fiscal dominance
- ·Scares are now rate scares, not growth scares
- ·Bond yields rising makes bonds more equity-correlated
- ·Term premium sits at ~69 basis points
- ·Risk: yields could rise from current levels
- ·A move from 4.5% to 5% raises the hurdle for stocks