The yield on the US 10-year real or inflation note fell to a record low of -1% on Monday after Wall Street Journal said the Fed may ditch the long-followed strategy of pre-emptive rate hikes to avoid a buildup of inflationary pressures in the economy.
The real yield has collapsed by 162 basis points over the past 4 months, having hit a high of 0.62% during the height of the coronavirus-induced turmoil in the global financial markets in mid-March.
The slide in real yields is reflective of ultra-accommodative monetary policy expectations and deteriorating macro conditions.
With the Fed planning to become more tolerant for above-target inflation, the odds appear stacked in favor of continued decline in real yields. The Fed adopted a 2% inflation target on Jan. 25, 2012.
Gold has benefitted from the slide in the real yield. The yellow metal is currently trading at $1,976 per ounce, representing a 30% year-to-date gain.
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