US yields: Real rates climb on Fed credibility – BNY Markets

BNY Markets’ John Velis observes that US real yields across the curve have risen sharply, driven more by expectations of further policy tightening than by inflation fears. Markets see the Fed and other central banks reacting to inflation, pushing long-term yields higher while breakevens stay rangebound. Robust growth, AI-related capex and contained term premia also support higher real rates.

Policy expectations drive real yield repricing

"With the market expecting upwards of an additional 75bp in policy tightening through this cycle, bond yields across the curve continue to move higher."

"We posited that instead of long-term inflation driving yields higher, it was ironically perceptions of central bank credibility – markets are expecting the Fed (and other central banks) to raise rates in response to rising inflation."

"This drives longer-term yields higher, even as breakevens and inflation swaps stay in their recent ranges."

"All have risen between 80 and 113bp, with the exception of the real 2y yield, which is up by over 170bp."

"Other factors behind higher yields center on robust growth and rising capex due to the AI and technology investment cycle – again a fact that would be reflected in real yields."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)