The Long-Term Death of Real Yields

Click to enlarge.

The black line shows the real interest rate investors earned on the 10-year treasury from the time of purchase (we don't know what the real yield is until 10 years have elapsed). The blue line shows what the real interest rate investors earned on the 10-year TIPS (we know instantly because the rate is the real yield).

If this downward trend kept the deflation monster at bay, then what's going to happen when the trend ends? Put another way, if 4+ years of ZIRP can't generate much inflation then what can? And how might the trend end? ZIRP has a 0% floor and we're glued to it.

As seen in the chart, interest rates are probably "tight" if the 10-year TIPS currently yields more than 0%. It now yields 0.57%. Tight!

Ben Bernanke should have never said the word taper. Just like the Japanese, we can't handle high interest rates any longer.

Want to know how to lock in Jeremy Siegel's mythical 3.5% real yields? It's really quite easy. First, invent a time machine. Second, travel back in time 16 years to July of 1997. And lastly, invest accordingly! Seriously.

Just opinions!

Source Data:
St. Louis Fed: 10-Year Treasury Rate
St. Louis Fed: 10-Year TIPS Rate
St. Louis Fed: CPI