Zero Real Rates

Yes, rates have climbed from their lows, but let’s hope we don’t look back on this and think that locking in a zero real return (1) for 30 years was a good investment at the time.

The positive gross yields on inflation protected treasuries look attractive, but the rush to buy them has pushed the real returns negative. If/when the yields get adjusted lower when inflation falls, investors may be taken off guard.

(1) The real return is the coupon payment less the inflation rate. So, if the coupon is 3% and inflation is 2%, the real rate is 1%.

Investments are not a deposit or other obligation of, or guaranteed by, the bank, are not FDIC insured, not insured by any federal government agency, and are subject to investment risks, including possible loss of principal.