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Bloomberg purports to be unable to understand what used to be called 'financial repression'
Bond Traders Stare at Worst Real Returns Since Volcker Era
By Ye Xie and Liz McCormick
Bloomberg News
Monday, December 13, 2021
Treasury investors are losing more money than they have in four decades, once inflation is taken into account. And if markets are right, they're unlikely to come out ahead for years.
The federal government's debt has already lost about 2% outright over the past year as the Federal Reserve started removing pandemic-era stimulus from the economy and inched closer toward raising interest rates. But on top of that, the consumer price index has surged 6.8%, putting investors even deeper in the hole.
... Dispatch continues below ...
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Taken together, that's resulting in the worst real returns -- or those adjusted for inflation -- since the early 1980s, when then Fed Chair Paul Volcker was in the midst of fighting a wage-price spiral. What's more, the dynamic isn't expected to change: The bond market is projecting that 10-year Treasury yields will hold below the inflation rate for the next decade, meaning any investment income will be more than wiped out by the rising cost of living.
The persistently low level of long-term yields in the face of the steepest inflation in decades has been a major puzzle on Wall Street, since it defies the textbook expectation that investors would demand higher payouts in return. In 1982, the last time year-on-year inflation surged as much as it did in November, the 10-year yield climbed as high as nearly 15%. It's below 1.5% now. ...
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