Real Rates in the Long Run
Notes on the Week Ahead
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The Impact of Inflation on Real Yields
We expect US real GDP growth to average just 1.6% per year over the next 10-15 years, compared to 2.94%. Since 1957, this on its own suggests real 10-year treasure yields going forward could be 0.37% lower than their 65.5-year average of 2.09%. Inflation expectations have also clearly had an impact on real rates over time. The very low real rates throughout the decade of the 1970s were followed by a period of very high real rates as investors expected inflation to remain high even as it fell.
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