Investors looking for a safe way to beat inflation don’t have to look very far anymore. Real yields—a measure of the stated return on Treasury bonds, minus inflation—have climbed to heights not seen since 2009. Based on 10-year Treasury inflation-protected security yields, real rates (as they are also known) are around 2% in the U.S.
Higher real yields are good news for savers, but the picture gets more complicated as they ripple through the markets and the economy. They reflect the fact that borrowing is getting more expensive, which tends to slow growth. In addition, higher real yields tend to drive investors into cash-like products such as money-market funds and out of riskier assets, from stocks to cryptocurrencies to gold, which can have an economic impact, too, if that movement goes on long enough.
The strength of the U.S. economy, a wave of Treasury debt sales and prospects that the Federal Reserve could keep rates higher for longer have lifted nominal yields in recent months. The benchmark 10-year yield now trades around 4.340%, the highest since 2007. Meanwhile, inflation hit 3.2% in July, near its slowest pace in more than two years. Presto, higher real yields.
Source: Wall St. Journal