Objective research to aid investing decisions

Value Investing Strategy (Strategy Overview)

Allocations for January 2021 (Final)

Momentum Investing Strategy (Strategy Overview)

Allocations for January 2021 (Final)
1st ETF 2nd ETF 3rd ETF

Real Bond Returns and Inflation

| | Posted in: Bonds, Economic Indicators

A subscriber asked (more than six years ago): "Everyone says I should not invest in bonds today because the interest rate is so low (and inflation is daunting). But real bond returns over the last 30 years are great, even while interest rates are low. Could you analyze why bonds do well after, but not before, 1981?" To investigate, we consider the U.S. long-run interest rate and the U.S. Consumer Price Index (CPI) series from Robert Shiller. The long-run interest rate is the yield on U.S. government bonds, specifically the constant maturity 10-year U.S. Treasury note after 1953. We use the term "T-note" loosely to refer to the entire series. We apply the formula used by Aswath Damodaran to the yield series to estimate the nominal T-note total returns. We use the CPI series to calculate inflation (12-month change in CPI). We subtract inflation from the T-note nominal total return to get the T-note real total return. Using annual Shiller interest rate and CPI data for 1871 through 2017, we find that:

Please or subscribe to continue reading...
Gain access to hundreds of premium articles, our momentum strategy, full RSS feeds, and more!  Learn more

Daily Email Updates
Filter Research
  • Research Categories (select one or more)