Market Insights

Where Will Real Yields Go?

June 3, 20241 Min Read
June 3, 2024
1 Min Read

Michael E. Schroer, CFA



The “real” yield on 10-year U.S. Treasury bonds (yield minus the rate of inflation) has tended to stay at unusually low levels since the 2008 Global Financial Crisis. If real yields revert to longer-term averages, bond yields may trend higher going forward.

The chart below illustrates the range of real yields on 10-year Treasury bonds during two separate periods: the 45-year period from 1962 to 2007 and the more recent 16-year period since the 2008 Global Financial Crisis (GFC). The GFC was marked by an unprecedented zero-interest rate policy (ZIRP) by the Federal Reserve that the Fed is only now gradually abandoning. The difference in the range of real yields in the two periods is dramatic.

Real Bond Yields
Data from 12/31/1962–12/31/2007 and 12/31/2007–4/30/2024.
Source: Federal Reserve Bank of St. Louis

For investors viewing the past 16 years as predictive of the future, the median real yield figure of 0.4% implies a possible 10-year Treasury yield of 2.4% (the 2% inflation target of the Fed plus 0.4%). The past 16 years includes the ZIRP policy by the Federal Reserve, which contributed to bonds offering a negative real yield over 25% of the time. For investors viewing the 1962–2007 period as being more predictive, the median real yield figure of 2.7% implies a possible 10-year Treasury yield of 4.7% (the 2% inflation target of the Fed plus 2.7%). Of course, if the Fed is unsuccessful in achieving an inflation rate of 2%, the Treasury yield would be higher in both instances. Currently, the 10-year yield is approximately 4.5%.

Hopefully, the inflation shocks of the early 1980s will never be repeated, but inflation has clearly moved higher in recent years. In addition, rising federal deficits could require a significant increase in the issuance of bonds. Both factors may result in bond yields trending higher than recent levels along with a reversion to more normal levels of real yields (i.e., 1962–2007).

Higher real bond yields do not necessarily mean low stock market returns. The S&P 500® achieved an annualized total return of 10.7% over the 1962–2007 period even in the face of high real yields, actually higher than the 10.0% return from 2008 through April of this year. However, the composition of stock market leadership will likely be impacted if real yields move higher. The impact of low bond yields since 2008 has been most beneficial to companies with high levels of financial leverage, as well as to unprofitable companies which have been able to continue to grow and expand using cheap debt. It is likely that high-quality companies that are able to internally finance growth through generation of cash flow from operations will be the relative beneficiaries of higher bond yields.

An interest rate environment of “higher for longer” may appear new to some investors, but not to those who have a longer-term historical perspective.

Michael E. Schroer, CFA



The “real” yield on 10-year U.S. Treasury bonds (yield minus the rate of inflation) has tended to stay at unusually low levels since the 2008 Global Financial Crisis. If real yields revert to longer-term averages, bond yields may trend higher going forward.


Is Japan Back?

March 21, 2024

It’s Been a Big Market Rally - What’s Next?

February 23, 2024

What Happens When Inflation Peaks?—Revisited

December 22, 2023

Get Our Latest Posts Delivered Right To Your Inbox.


This Market Update reflects the thoughts of Renaissance as of April 30, 2024. This information has been provided by Renaissance Investment Management. All material presented is compiled from sources believed to be reliable and current, but accuracy cannot be guaranteed. This is not to be construed as an offer to buy or sell any financial instruments and should not be relied upon as the sole factor in an investment making decision, nor should it be considered a recommendation. The views and opinions expressed are those of the Chief Investment Officer at the time of publication and are subject to change. There is no guarantee that these views will come to pass. As with all investments, there are associated inherent risks. Please obtain and review all financial material carefully before investing.

Renaissance has a Client Servicing and Marketing Agreement with its affiliate AMG Funds LLC, a subsidiary of Affiliated Managers Group (AMG), under which AMG Funds markets Renaissance’s products to third parties (such as brokerage houses and investment consultants) and/or to other platforms. AMG Funds is paid a fee by Renaissance for these services.

If Renaissance or benchmark performance is shown, it represents historically achieved results, and is no guarantee of future performance. Future investments may be made under materially different economic conditions, in different securities and using different investment strategies and these differences may have a significant effect on the results portrayed. Each of these material market or economic conditions may or may not be repeated. Therefore, there may be sharp differences between the benchmark or Renaissance performance shown and the actual performance results achieved by any particular client. Benchmark results are shown for comparison purposes only. The benchmark presented represents unmanaged portfolios whose characteristics differ from the composite portfolios; however, they tend to represent the investment environment existing during the time periods shown. The benchmark cannot be invested in directly. The returns of the benchmark do not include any transaction costs, management fees or other costs. The holdings of the client portfolios in our composites may differ significantly from the securities that comprise the benchmark shown. The benchmark has been selected to represent what Renaissance believes is an appropriate benchmark with which to compare the composite performance.

The value of an investment may fall as well as rise. Please note that different types of investments involve varying degrees of risk and there can be no assurance that any specific investment will either be appropriate or profitable for a client or prospective client’s investment portfolio. Investor principal is not guaranteed and investors may not receive the full amount of their investment at the time of sale if asset values have fallen. No assurance can be given that an investor will not lose invested capital. Consultants supplied with these performance results are advised to use this data in accordance with SEC guidelines. The actual performance achieved by a client portfolio may be affected by a variety of factors, including the initial balance of the account, the timing and amount of any additions to or withdrawals from the portfolio, changes made to the account to reflect the specific investment needs or preferences of the client, durations and timing of participation as a RIM client, and a client portfolio’s risk tolerance, investment objectives, and investment time horizon. All investments carry a certain degree of risk, including the loss of principal and are not guaranteed by the U.S. government.

(Indices are unmanaged and are not available for direct investment.)
S&P 500 Index—The S&P 500 Stock Index is a market capitalization weighted index and consists of 500 stocks chosen for market size, liquidity and industry group representation.

S&P Dow Jones is the source and owner of the trademarks, service marks and copyrights related to the S&P Indexes. S&P® is a trademark of S&P Dow Jones. This presentation may contain proprietary S&P data and unauthorized use, disclosure, copying, dissemination or redistribution is strictly prohibited. This is a presentation of Renaissance Investment Management. S&P Dow Jones is not responsible for the formatting or configuration of this material or for any inaccuracy in Renaissance’s presentation thereof. This data is to be used for the recipient’s internal use only.

AMG Funds, LLC cannot guarantee that the information herein is accurate, complete, or timely. AMG Funds, LLC makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any reliance on, such information.


More Like This