PRESS ROOM
US Treasury real yields remain low as inflation expectations rise
Thursday 28th January '21
In recent weeks, the rise in 10-year nominal US Treasury yields has caught the attention of investors. Nominal yields are a function of expectations of interest rates as well as inflation. Interest rate expectations have not changed meaningfully in recent weeks – something which is reflected in relatively unchanged real yields. Instead, inflation expectations are on the rise. This is illustrated by rising breakeven inflation rates. What this means is that bond markets are currently pricing rates to remain low even as the US economy starts to recover and inflation starts to rise. Markets will be looking out for the minutes from the US Federal Reserve’s January meeting to get a reassurance that the central bank will remain accommodative in the year ahead.