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US real yields have soared to the highest level since 2011

Investors are expecting higher inflation-adjusted returns on ultra-safe government debt

The yield on 10-year Treasury inflation-protected securities (Tips) hit 1.2 per cent, up from roughly minus 1 per cent at the start of the year

Strategists with Goldman Sachs said that “after a long stretch”, investors would soon earn returns that have been “impossible” to come by for the past 15 years.

Those real yields fell deeply into negative territory at the height of the coronavirus pandemic as the Fed cut interest rates to stimulate the economy, sending investors racing into stocks and other risky assets in search of returns. 

That has reversed as the US central bank has rapidly tightened policy.

A measure of inflation expectations known as the 10-year break-even rate, which is based on the difference in yield on traditional Treasuries and Tips, has eased from a high of 3 per cent in April to 2.4 per cent this week. That would mark a dramatic decline from the August inflation rate of 8.3 per cent.

FT 21 September 2022

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