Getting real about bonds

Government bond yields have been mostly driven by increases in real yields. What does that even mean?

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Get Real
Welcome to the Know the Difference Minute for Tuesday, August 22nd.
Government bond yields have gone up quite a bit lately. It’s been mostly driven by increases in real yields. What does that even mean?
Economists like to talk about nominal and real values. Nominal values are things you can observe. A one-year Treasury bill has a yield of around 5.1%. That’s nominal. The real yield is adjusted for inflation. It’s a way to see whether the yield more than makes up for the corrosive effects of inflation. Real yields are important because we hope to make more than what inflation takes away.
We don’t know the real yield until after inflation has already happened except there are these things called Treasury Inflation Protected Securities or TIPS. Those automatically adjust the payments to investors to compensate for inflation. Those yields are higher than they’ve been in decades. It’s easy to get real about bonds.
I’m Brian Jacobsen, Chief Economist at Annex Wealth Management. That is your Know the Difference Minute.