"The sharp drop in Treasury-bond yields lately suggests inflation isn't a big concern to investors. ... [T]he yield of the 10-year Treasury note has dropped to 4.169% yesterday from 5.297% in June, even as headline inflation has moved higher", Scott Patterson in the WSJ, 14 December.
To get a 2.5% "real rate of return" from a "riskless" asset implies the Treasury market predicts inflation will average 1.669% (4.169% - 2.500%) over the next ten years! Does anyone believe that? What's going on here? I see no reason to own long-dated Treasury paper at these rates.
To get a 2.5% "real rate of return" from a "riskless" asset implies the Treasury market predicts inflation will average 1.669% (4.169% - 2.500%) over the next ten years! Does anyone believe that? What's going on here? I see no reason to own long-dated Treasury paper at these rates.
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