Home Logon FTA Investment Managers Blog Subscribe About Us Contact Us

Search by Ticker, Keyword or CUSIP       
Blog Home
Bob Carey
Chief Market Strategist
X •  LinkedIn

  The Real Rate of Return on the 10-Year Treasury Note is Negative
Posted Under: Bond Market
Supporting Image for Blog Post

View from the Observation Deck  
  1. The real rate of return on a bond is calculated by subtracting the most recent inflation rate, such as the Consumer Price Index (CPI), from the bond's current yield. The higher the real rate the better. 
  2. As of the close of 9/30/20, the yield on the benchmark 10-year T-note was 0.69% (0.7% rounded), essentially half the 1.4% trailing 12-month rate on the CPI in September 2020 (most recent rate available). That equates to a real rate of -0.7%, which is not attractive, in our opinion.  
  3. At a base level, in order to maintain one's purchasing power, bond investors have sought to generate a yield that at least outpaces the rate of inflation.
  4. For comparative purposes, from 9/30/90 through 9/30/20 (30 years), the average yield on the 10-year T-note was 4.3% (rounded), while the average rate on the CPI stood at 2.4%, according to Bloomberg. Those figures translate into an average real rate of return of 1.9%, far more attractive than currently available. 
  5. In September, the Federal Reserve ("Fed") stated that it expects to hold short-term interest rates near zero until two things happen: (1) the U.S. unemployment rate is back to normal (around a 4.0% unemployment rate), and (2) inflation is running at or above 2.0%.
  6. Brian Wesbury, Chief Economist at First Trust Advisors L.P., notes that the Fed does not expect to achieve both goals until 2024.  
  7. We believe that one of the Fed's motivations in promoting a multi-year commitment to a near zero interest rate monetary policy is to incentivize risk-taking, and that extends to the bond market. 
This chart is for illustrative purposes only and not indicative of any actual investment. 
Download a PDF of this post, please click here.
Posted on Thursday, October 29, 2020 @ 2:43 PM • Post Link Print this post Printer Friendly

These posts were prepared by First Trust Advisors L.P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
Search Posts
Market Commentary and Analysis
Market Commentary Video
Monthly Talking Points
Quarterly Newsletter
Market Observations
Subscribe To Receive Email

A Snapshot of Growth vs. Value Investing
S&P 500 Index Dividend Payout Profile
How Stocks Have Fared Since Donald J. Trump Was Elected President
Low U.S. Consumer Credit Default Rate A Nice Tailwind For Discretionary Stocks
A Global Snapshot Of Government Bond Yields
Many Investors Could Be Underweight U.S. Mid- & Small-Cap Stocks
The Only Constant Is Change
Top-Performing S&P 500 Index Subsectors In 2020
A Snapshot Of Bond Valuations
Sector Performance Via Market Capitalization (Year-to-Date)
Skip Navigation Links.
Search by Topic
Skip Navigation Links.

The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial professionals are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
Follow First Trust:  
First Trust Portfolios L.P.  Member SIPC and FINRA. (Form CRS)   •  First Trust Advisors L.P. (Form CRS)
Home |  Important Legal Information |  Privacy Policy |  California Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2024 All rights reserved.