It wasn’t all that long ago that investors could buy a 10-year or 30-year U.S. Treasury bond and earn a relatively risk-free rate of return of 7% or better per year. Now 10-years earn a measly 1.60% annually, which is below the Federal Reserve’s 2% inflation target, making it a losing investment in real, after-inflation terms. 30-years don’t offer a rate that much better at just 2.43%. Despite one Fed rate hike of 25 basis points earlier this year, bond yields remain stubbornly low with central banks around the world desperately dropping rates (even into negative territory) to help support needed economic growth.Fed policymakers last week cut their long-term median interest rate projections to just 3.00%; that is, the rate at which employment is maximized while controlling inflation at the same time, often synonymous with the “neutral rate.” This projection stood at 4.25% just four years ago. 10-years normally keep a spread of 150 basis points above the federal funds rate, while 30-years provide a spread of around 200-400 basis points. This means we might expect 10-years to attain a median return of 4.50% over time, with 30-years at somewhere between 4.50%-6.00%, I would guess. Assuming the Fed obtains its targeted 2% inflation rate, real returns on these bonds would approximate 2.50% and 2.50%-4.00%, respectively. Also, the rules I mentioned do not always hold up. The federal funds rate is a notable component of Treasury bond yields, but is still subject to the vagaries of a traded market based on investors expectations about elements outside of interest rates, such as expected inflation and the returns of other asset classes. As noted in the chart below, during the Fed rate hikes from 2004-2007, the 30-year yield barely moved, and actually fell below the federal funds rate.Needless to say these are not great returns but even at the neutral rate, this should imply that A-rated corporate bonds will still yield 7% or better. Even so, inflation-adjusted yields of 2.50%-4.00% aren’t terrible for supposedly risk-free investments.