Friday, July 27, 2012

Long term US real rates hit record lows

As discussed earlier (see this post), US real long-term yields are continuing to move deeper into negative territory. Zero coupon real yield is defined as the difference between zero coupon nominal treasury yield and zero coupon inflation swap rate.

The 10-year real yield touched a record low today of negative 82bp. Declines in inflation expectations simply have not kept up with the declines in nominal yields. The risk of holding long-term treasuries is increasing and if QE3 expectations are not fully materialized, treasury investors could be in trouble.

US 10y zero coupon real yield  (source: Bloomberg)
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