What Are Real Yields, and Why Do They Matter? Summary: Now that inflation has subsided somewhat, the market is experiencing favorable real rates. Positive real rates are good for savers, but potentially problematic for the equity markets. Real rates, the difference between on-the-run treasuries and inflation (most recently auctioned bond), in June 2022 was -6.16 (2.94 – 9.1). This meant that savers were earning a negative yield on their fixed- income investments. Today, real rates are the highest they have been since 2009 A welcome change especially for retirees living on a fixed income. However, that assumes that retirees have rotated their investments into fixed income. Since the rates on bonds were so low, retirees were forced to invest in riskier assets like common stock to get a return that kept up with inflation. As higher rates entice
What Are Real Yields, and Why Do They Matter? Summary: Now that inflation has subsided somewhat, the market is experiencing favorable real rates. Positive real rates are good for savers, but potentially problematic for the equity markets. Real rates, the difference between on-the-run treasuries and inflation (most recently auctioned bond), in June 2022 was -6.16 (2.94 – 9.1). This meant that savers were earning a negative yield on their fixed- income investments. Today, real rates are the highest they have been since 2009 A welcome change especially for retirees living on a fixed income. However, that assumes that retirees have rotated their investments into fixed income. Since the rates on bonds were so low, retirees were forced to invest in riskier assets like common stock to get a return that kept up with inflation. As higher rates entice
Chapter17: Inflation
Section: Chapter Questions
Problem 20SQ
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