The chart below compares the 10-year zero coupon US treasury yield with the 10-year zero coupon inflation swap rate. The difference is the implied 10-year zero coupon real rate (h/t Greg Trotter who will be writing a guest post on the topic) - which is becoming increasingly negative. We are not in a stagflation environment yet, but this indicator is certainly starting to point in that direction.
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| 10-year zero coupon US treasury yield (orange) and the 10-year zero coupon inflation swap rate (white) |
Just to put things on perspective, the CRB Commodity Index broke through 300 today and is now up 14% from the lows. As inflation expectations pick up (due to increasing rents and rising commodity prices), this push into the negative real rate territory is only going to get worse.
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| CRB Commodity Index |
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