Chart with a line showing the 10-year Treasury note that shows the composition of the nominal 10-year U.S. Treasury note from January 2010 through December 2023. It is the addition of inflation expectations (using the 10-year breakeven inflation rate as a proxy) with the real rate (using the Treasury Inflation Protected Security yield as a proxy). Real rates have moved into positive territory as inflation expectations have moderated around 2.5% and as the 10-year nominal rate has increased.
Sources: Bloomberg and Wells Fargo Investment Institute. Daily data from January 1, 2010 to December 31, 2023. For illustrative purposes only. Yields represent past performance and fluctuate with market conditions. Current yields may be higher or lower than those quoted above. Past performance is no guarantee of future results. Although Treasuries are considered free from credit risk they are subject to other types of risks. These risks include interest rate risk, which may cause the underlying value of the bond to fluctuate.
Key Takeaways
- Real rates on the 10-year U.S. Treasury have been in positive territory since May 2022 as 10-year breakeven inflation rate readings came in below nominal rates. We expect real rates to remain positive for some time, especially if nominal rates remain elevated.
- Now may be a good time to consider locking in higher interest rates on long-term bonds to potentially earn positive yields above the level of inflation (real yield).