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What is real yield?
Real yield is the return on a bond after subtracting expected inflation. The cleanest measure is the yield on Treasury Inflation-Protected Securities (TIPS), which pays a real coupon plus an inflation adjustment. The 10Y real yield is one of the most important rates in markets: it discounts long-duration cash flows (growth stocks), prices gold (gold pays no yield, so real yield is its opportunity cost), and gauges Fed restrictiveness. Rising real yields tighten conditions; falling real yields ease them.
- TIPS yield - Direct market measure of real yield.
- 10Y real yield - Discount rate for long-duration assets.
- Gold's opportunity cost - Higher real yield = lower gold.
- Fed restrictiveness - Real fed funds vs neutral real rate.
Two ways to measure
- TIPS yield - direct market price of real return
- Nominal yield − breakeven inflation - derived measure
Both should agree. When they diverge, liquidity in TIPS is the issue.
Why it matters
- Growth stocks - real yield is the discount rate. Rising real = multiple compression.
- Gold - gold pays no yield, so real yield is the opportunity cost of holding it.
- EM equities - real yield differential drives capital flows.
- Fed restrictiveness - real fed funds rate vs estimated r* (neutral real rate).
What to watch
- 10Y real yield - primary discount rate
- 5Y real yield - cyclical sensitivity
- Real fed funds rate - fed funds minus core PCE - the actual policy stance