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Tuesday, May 2, 2017

Data Point: Real Yield Curve

Periodically I've posted graphs showing the future bond yields implied by the difference between (say) the yield on a 5 year bond and a 7 year bond. The Treasury also issues TIPS, bonds whose post-inflation yield is guaranteed. Doing so gives suggests after-inflation returns – the yield on a 2-year bond – of 0.65% in 2022. Over the past 10 years, as per the previous post, real bond yields lay below the real growth rate by about 0.65%. So will the ceiling on real growth over the next 5 years be 1.5%?? This of course is consistent with the argument of Robert Gordon that the US is seeing and will continue to see lower growth than experienced in the first four post-WWII decades. (For reference I also include one measure of inflation, the rate of increase in personal consumption expenditures after lopping off items with the highest and lowest price changes. This continues to trend just under 2%.)