Real Yields’ Rise Is Canary in the Coal Mine for Risk Assets
- 5- and 10-year real rates, gauged by TIPS yields, have risen
- Inflation expectations’ jump is driving nominal yields higher
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For all the fear and angst about the risk of long-term Treasury yields lurching even higher, a true warning for global investors would be a surge in real rates.
While higher real yields signal the economy is gaining traction, a potential pickup in the pace of increases that occurred in recent days would bode poorly for the cost to borrow. In addition, a rise in yields might create potential rivalry for other asset classes that have benefited from negative real rates, including stocks, which are currently trading near all-time highs.