FAST FIVE: The "Real" Real Yield Is -4.15%… And We Are Stuck With It Forever
And We Are Stuck With It Forever As we pointed out earlier this week, 10 year real yields spent the past few days trading around all-time lows.
Nevertheless, according to Reid, this measure does do a good job of broadly tracking real yields as officially quoted using TIPS.
Well, it's important because with real yields at what is basically all time lows, any attempts to push them higher will lead to a collapse in the financial system, as both Citi's Matt King wrote in a recent must-read report, and as Jim Reid notes: “I've been on record over the last few years for saying that with debt so high real yields are likely to stay negative for the rest of my career as the authorities have to control funding this rising leverage.
I hope if I'm wrong I can apologize and still have a career though.” It gets scarier because as Reid concludes, “positive US real yields for any length of time would likely set off debt crises around the world so we are probably stuck with the regime.” That said, one can still have negative real yields and higher nominal yields.
Which can also happen as long as the world keeps finding a major “crisis” every year or so to justify ever greater monetary stimulus and liquidity injections.