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Blokland’s daily sketch

Blokland’s daily sketch

04-08-2020

Real yield drops to new low

  • Jeroen Blokland
    Jeroen
    Blokland
    Portfolio Manager

The real US 10-year Treasury yield fell to -1.0% yesterday, a new low. While this should lead to a rise in real economic activity, it’s impact on financial markets should not be underestimated as well. There is a very strong inverse relationship between real yield and gold. But for equities too, lower real yields tend to be beneficial. The question arises of how much further real yield can fall now that nominal bond yields are close to, or even below, zero. The answer bring us back to the real economy. If central banks and governments succeed in keeping economic recovery on track, inflation expectations can rise, further depressing the real yield. Obviously, if recovery falters, inflation expectations will not increase, leaving central banks with another formidable task to prevent real yields from rising.

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As a senior portfolio manager I use charts to illustrate financial issues every day. I tweet my favorites as @jsblokland and was named 'one of the 50 most important people for investors to follow in 2018' by MarketWatch.
Previous editions of the daily sketch can be found on my personal financial markets blog. All graphics provided are collected from Bloomberg data and public websites. They do not always reflect my personal opinion and may also not necessarily reflect the opinion of Robeco. Please cite all references or quote the original source if replicating content.

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