Different eras for US real yields
As price increases slow and central banks raise interest rates, it’s interesting to see how US 10-year yields have fluctuated when adjusted for inflation.
This chart breaks down the evolution of real US 10-year yields by creating an average for each decade. The real yield peaked in the early 1980s, when Federal Reserve Chairman Paul Volcker was famously engaged in sharp rate hikes to bring down inflation that was even higher than it was 2022-23.
As we can see in the 1970s, bonds were a bad bet; inflation largely wiped out your yields. By contrast, investors who bet that Volcker would succeed in his quest were rewarded handsomely. The average post-inflation return was 5 percent in the 1980s – making it the best decade.
1970s-style returns returned in the 2010s – this time due to disinflation and ultra-low rates. And we’re still in negative returns so far in the 2020s after a historic, inflation-driven bear market.