Real Interest Rates Are Negative

Teresa Lo points out that a small but important factoid about what real yield: we now have Negative Interest Rates


Real 10-Year T-Note yield since 200516real_rates1

Subtract the 12-month change in the consumer price index from the
month-end CBOE 10-year Treasury Note yield ($TNX).

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What's been said:

Discussions found on the web:
  1. Mike M commented on Dec 18

    The bond market is screaming RECESSION (and deflation).

  2. skateman commented on Dec 18

    Which means either that rates are heading higher, or, more likely in my opinion, the bond market is aware of the massively deflationary implications of the unwinding of a credit bubble. Note that prices are already falling dramatically for households’ largest expense, their home.

  3. jag commented on Dec 18

    This is why I buy TIPS, not plain ol’ Treasuries

  4. jkw commented on Dec 18

    You have to offset the time axis for this to be a fair comparison. You are using backwards-looking inflation with forwards-looking interest rates. If you want to know the real return on treasuries, you have to compare their return to inflation for the same time period.In other words, you should look at a graph of the total return of treasuries for the past twelve months compared to inflation for the past twelve months. Comparing returns for the next ten years to inflation for the past twelve months makes no sense, unless you are going to outright assume that inflation will remain at this level.


    BR: That’s a valid observation . . . thank you for pointing that out

  5. boomdotbust commented on Dec 18

    Let’s face reality – we’ve had negative interest rates for years. Unless, of course, you believe the hedonically-adusted inflation ex-inflation numbers being foisted on us…

  6. michael schumacher commented on Dec 18


    I thought that was the crunchy stuff at the bottom of the rice pot…



  7. Niki Lada commented on Dec 18

    Michael, time to flog your ‘arrest me yellow’ twin turbo Porsche through the Cantons. Love your humour.

  8. wally commented on Dec 18

    Such a shame – this comes at a time when so many people are tapped out on their home equity lines. The best times to borrow are just arriving.

  9. Kp commented on Dec 18

    I sure hope your TIPS aren’t indexed with CPI…

  10. Bynoceros commented on Dec 18


    We’ve had real negative interest rates on the ten year eight times since World War 2. In fact, it happened as recently as September ’05, and the markets are now 20% higher.

    Wanna know what impact real interest rates have on subsequent stock market? None. Zilch. Nada. The adjusted r is negative, if that tells you anything.

    Love the blog, am a daily reader, but this is the epitome of info porn: a pretty chart that’s not presented in proper context that gives the reader no new knowledge and leads one to believe there is a relationship where none exists.

    Now, if I’m GM, this makes me real happy. But, if I’m Fidelity, I don’t give a shit.


  11. Sam Park commented on Dec 18

    You had the same (negative real rates) back in 2005…

    We didn’t have negative real rates anytime around the recessions in 2001 and 1991.

    This is a poor predictor of a recession.

  12. Sam Park commented on Dec 18

    You had the same (negative real rates) back in 2005…

    We didn’t have negative real rates anytime around the recessions in 2001 and 1991.

    This is a poor predictor of a recession.

  13. justino commented on Dec 18

    Not if you listen to your buddy Mr. Krudlow. Whew! has he lost it…while trying to predict inflation using just M1. What with all the extra add-ons to money in the last couple of years, you mean to tell me that credit has no part in increased inflation? Let me tell you about the times I have over paid because I had a card in my hand. That being said, I do believe that there is a case to be made for deflation (people just not buying because their dollar get-up-and-go, has got up and went…

  14. justino commented on Dec 18

    Would one of you market gurus help me out here: I have been noticing some double-clutching in the basic materials sector – DRYS, X, and a Cleveland Tectonite play. Not if, but when the shit hits the fan wouldn’t one of these guys be a great short?

  15. bobby commented on Dec 19

    jag is right. An even more accurate measure (although not forward looking) is to subtract from the ten year yield actual CPI for the following year. From 1/1962 to11/2006, the average real yield based on monthly data was 2.33% with a minimum of -5.47% and a maximum of 9.56%. Out of the 539 overlapping monthly periods, only 76 had negative returns. With one or two exceptions, these stem from investments made in 1973-74 (oil embargo) and 1979-80 (Iranian crisis), pretty unusual events.

    In general, bond investors are pretty smart and would not bet against them, especially based on overly simplistic analysis. (When I first saw the “analysis,” I though it was to take a shot at CNBC – I can’t believe anyone would seriously advance such nonsense!)

  16. 2and20 commented on Dec 19

    From the first poster Mike M:
    “The bond market is screaming RECESSION (and deflation).”

    exactly, whilst the crowd still screams inflation/hyperinflation.

    the yield curve has been fairly flat or inverted for a while now, and inflation break-evens on TIPS haven’t actually moved much for a long time.

    i’ll bet on the bond market and deflation. sell stocks/buy 30y treasuries is the most obvious trade out there, do it today and come back this time next year, you can’t go wrong.

  17. Don commented on Dec 19

    abc (and I just had a great post–at least I thought– get lost in the blogosphere)

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