Treasury Yields Below Inflation May Last Years: Chart of the Day

Investors in Treasury securities will have to get used to yields lower than the U.S. inflation rate, according to Andrew Garthwaite, a global strategist at Credit Suisse Group AG.

As the CHART OF THE DAY shows, the so-called real yield on 10-year notes is less than zero for the second consecutive year. That hasn’t occurred since the 1970s, according to data compiled by Yale University Professor Robert J. Shiller. The real yield is calculated by subtracting the 12-month percentage change in consumer prices from the notes’ yield.

“Negative real rates will remain in place for at least a decade -- and maybe a generation,” Garthwaite, who is based in London, wrote two days ago in a report.

To reduce the ratio of government debt to gross domestic product and to bolster employment, the U.S. and other developed countries need to bring down real yields to minus 1.5 percent to minus 2 percent, the report said. The 10-year Treasury’s latest monthly figure, for October, was negative 0.4 percent.

U.S. borrowing exceeds 100 percent of GDP for the first time since the 1940s, according to government data depicted in the chart. In 1946, the debt-to-GDP ratio peaked at 121 percent and the inflation-adjusted 10-year yield dropped to a year-end low of negative 16 percent.

Federal Reserve policy makers decided this week to hold down their main interest rate as long as unemployment exceeds 6.5 percent and projected inflation is less than 2.5 percent. The decision bodes well for stocks, Garthwaite wrote, as it points toward faster GDP growth or accelerating inflation.

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To contact the editor responsible for this story: Chris Nagi at

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