over 1 year ago • 1 min
After being stuck in negative territory for most of the pandemic years, real (i.e. inflation-adjusted) Treasury yields have roared back above zero again, with the yields on the 5-year and 10-year inflation-protected Treasuries back near multi-year highs (pink and blue lines above). Real yields are seen as the true cost of money, so when they rise, it makes borrowing more expensive and reduces the appeal of many assets – especially speculative ones (stocks of unprofitable tech companies, for example, or crypto) and ones that don’t pay any income (gold, for example).
Problem is, real yields are expected to head even higher, as the Federal Reserve continues to tighten financial conditions to try to bring down the country’s sky-high inflation. That suggests further pressure on virtually every asset class, and on the economy itself, with Goldman Sachs recently saying that 10-year real yields are moving closer to levels that would materially restrict economic activity. And that could mean real pain for the US, and for global growth…
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