The WSJ recently showed a Credit Suisse graph illustrating just how low interest rates are. Instead of showing what the nominal yield is, the graph shows the real yield (yield less CPI). The real long-term (note: it was not disclosed what long-term represented) yield appears to be right around 1% and near the all-time low.
I did my own research (via FRED) and my data showed something similar. What I did was take the 10 year Treasury yield and subtracted the YoY change in the CPI less food and energy.
- Average real 10 year yield since 1957 was about 3% with a standard deviation a little less than 2%.
- The all-time low was a little less than -3.50% in the 1970s. The max was a little under 9% in the mid 1980s.
- Currently the real yield is essentially 0%; however, is still within 2 standard deviations of the average.
Unfortunately from the link and my data there isn’t a lot I can conclude here other than that real interest rates are really low. One would think real yields would have to rise at some point, but that still leaves a few problems.
- When?
- This says nothing about nominal yield and how to play the yield curve.
With regard to the first, I don’t think it will be soon. Plus, you don’t want to “fight the Fed”. With regard to the second, if we begin to have lower inflation or deflation and interest rates don’t move, real rates will rise, but if you bet on nominal yields moving up you would have lost. Further, even though rates have crept up the move is still relatively small.
