Key points
- Calculated as the nominal yield minus expected inflation (often the breakeven rate).
- High positive real yields indicate restrictive financial conditions.
- All else equal, higher real yields lower share valuations, especially for growth companies whose profits lie far in the future.
- When real yields rise, gold and growth shares have often fallen.
Example
If 10Y Treasury yields 4.5% and inflation expectations are 2.5%, the real yield is 2.0%—indicating restrictive financial conditions.
In history
The 10-year real yield turned positive in April 2022 for the first time since early 2020. Over the year the S&P 500 fell about 19% and gold dropped to around $1,630 before recovering.
Related terms