Weekly Report

We are often told that real bond yield is determined by real economic growth. Although this sounds intuitively right, it has not been the case for a long time as real yield has fallen far below economic growth.

Maybe it’s time to rewrite the relationship: Real yield is the real price of loanable fund and therefore, should be determined by demand for and supply of savings. This Alpine Macro  chart suggests that the rise in U.S. household savings rate since 2008 has chronically depressed TIPS yield and the pandemic crisis has worsened the saving glut, driving down TIPS yield.