Unfamiliar Territory: Real Yields in Perspective

Real yields are in unfamiliar territory, and the chart below provides context for just how unusual the current environment is. It also shows that historically, such periods haven’t lasted long.

The line reflects the 10-year Treasury yield minus CPI, or real yield. Currently, real yields are not only negative, but at their lowest point since the late 1970s and early 1980s.

The story of the chart may be consistent with a consensus market view that is in line with the Fed: That inflation is transitory, and that once the sugar high of stimulus wears off, the world will revert to the slow growth, low inflation environment it has experienced since the financial crisis. As we’ve written about in prior blogs, we have a different point of view, and believe forces are in play that could encourage longer run inflation.

Another important takeaway from the chart is how fast market sentiment can reverse. In previous periods when real yields were negative, the market shifted quickly … and violently.

It remains to be seen whether we are at a similar inflection point today. But it will be interesting to see what happens if the employment picture improves quicker than expected once unemployment benefits go away and kids go back to school, and/or we see upside surprises to CPI or other inflationary signals, and/or the Fed chooses to lessen security purchases sooner than expected.

The catalyst for change is not always obvious.

10-Year Treasury Yield Minus CPI Since 1962  (The Real Yield)

Value Investing: Is Your Portfolio Ready for the Rotation?


Sign Up To Receive Our Market Insights.



The views described herein do not constitute investment advice, are not a guarantee of future performance, and are not intended as an offer or solicitation with respect to the purchase or sale of any security. Investing involves risk, including loss of principal. Investors should consider the investment objective, risks, charges and expenses of a Fund carefully before investing. Please review the offering memorandum or prospectus of a Fund for a complete discussion of the Fund’s risks which include, but are not limited to: possible loss of principal amount invested; stock market risk; value risk; interest rate risk; income risk; credit risk; foreign securities risk; currency risk and derivatives risk.

Nothing contained herein constitutes investment, legal, tax, or other advice nor should be relied upon in making an investment or other decision. Any projections, outlooks or estimates contained herein are forward looking statements based upon specific assumptions and should not be construed as indicative of any actual events that have occurred or may occur. 

This site uses cookies to enhance your website experience. By subscribing to our Market Insights, you are agreeing to our use of cookies. See our cookie policy here