Finally positive real returns for bonds in the US again

When it comes to real yields, professional investors actually look at bond yields minus implied inflation expectations and then see if there is a net plus. But now, even in the US, bond yields minus current real inflation show positive real yields. The investor effectively makes a profit.

Positive real income in the US due to low inflation

The reason: US inflation for June was reported yesterday at just 3.0% in June after 4.0% in May. ie: Currently 3.83% Yield Ten-year US government bonds would earn you a positive real yield of 0.83% – so you would actually earn 0.83% after deducting inflation from this investment – of course 3% inflation is a theoretical annual average value, with an annualized return of 3.83%. With a 2-year bond duration and a current yield of 4.67%, the US actually has a positive real yield of 1.67%. For German investors thinking about such an investment, currency risk will certainly also be an issue.

The following Trade show US inflation in blue and orange shows 10-year US Treasury yield trends from 2019. It has so far fallen from 9% to 3%, and has fallen below the level of yields – and the real yield on 10-year interest rate investments in the US.

Germany still has hearteningly negative real yields

In the chart below, we see the same comparison, only this time with the 10-year German Bund and German inflation. As you can see, the gap is still huge. Inflation in this country is 6.4% Only 2.47% Bond Yield Vs. The German real yield is minus 3.93%. With a two-year yield of 3.20%, that’s still the largest negative real yield of -3.2%. Well, the ECB will keep raising interest rates. But inflation in the eurozone and in Germany should return even more clearly. While small savers are currently happy with some online banks offering 3.50% overnight cash for a limited period – here too a strong real loss after deducting currency depreciation.

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