The Lesser-Known Treasury Yield
The Treasury yield curve is a closely watched indicator of the health of the U.S. economy. It is a graph that shows the yields of U.S. Treasury bonds of different maturities, from three months to 30 years. The yield curve is usually upward sloping, meaning that longer-term bonds have higher yields than shorter-term bonds.
However, there is another, lesser-known Treasury yield that is on the brink of a historic breakthrough. This yield is known as the “real yield,” and it is calculated by subtracting the rate of inflation from the nominal yield of a Treasury bond.
What is Real Yield?
Real yield is a measure of the return on a Treasury bond after adjusting for inflation. It is calculated by subtracting the rate of inflation from the nominal yield of a Treasury bond. For example, if the nominal yield of a 10-year Treasury bond is 2%, and the rate of inflation is 1%, then the real yield of the bond is 1%.
Real yield is important because it provides investors with a measure of the true return on their investment. When inflation is taken into account, investors can get a better sense of how much their money is really worth.
Real Yield on the Brink of a Historic Breakthrough
Real yield is on the brink of a historic breakthrough. For the first time in decades, the real yield on 10-year Treasury bonds is close to zero. This means that investors are essentially getting a return on their investment that is equal to the rate of inflation.
This is a significant milestone, as it suggests that investors are no longer being compensated for the risk of investing in long-term Treasury bonds. This could have implications for the U.S. economy, as it could lead to a decrease in investment in long-term Treasury bonds.
Implications for the U.S. Economy
The implications of a zero real yield on 10-year Treasury bonds are far-reaching. For one, it could lead to a decrease in investment in long-term Treasury bonds. This could have a negative effect on the U.S. economy, as it could lead to a decrease in the amount of capital available for investment.
In addition, a zero real yield could lead to an increase in the cost of borrowing for businesses and consumers. This could have a negative effect on economic growth, as businesses and consumers may be less likely to borrow money if the cost of borrowing is too high.
Finally, a zero real yield could lead to an increase in the cost of government borrowing. This could have a negative effect on the U.S. budget deficit, as the government would have to pay more to borrow money.
Conclusion
The real yield on 10-year Treasury bonds is on the brink of a historic breakthrough. This could have far-reaching implications for the U.S. economy, as it could lead to a decrease in investment in long-term Treasury bonds, an increase in the cost of borrowing for businesses and consumers, and an increase in the cost of government borrowing. It remains to be seen how these changes will affect the U.S. economy in the coming years.