Surging Real Yields Are A Critical Risk Factor… Again
Inflation-adjusted interest rates are rising, rapidly. It wasn’t all that long ago that pundits and markets were worrying about the fallout from negative real rates. In short order, the risk has reversed as the Federal Reserve persists with a hawkish-policy run to tame inflation.
The reversal from negative to positive has been fierce and rapid for real rates. Consider how 5- and 10-year Treasury TIPS yields have soared in recent weeks. As recently as March, the 5-year TIPS was below -1.5%. As of yesterday (Sep. 26) it was +1.58% — a sharp ~300 basis points rebound in the course of around six months.