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.
US real yields across the yield curve have recently surged, driven primarily by expectations of further tightening by the Federal Reserve and other central banks, rather than by inflation concerns. The Federal Reserve and other central banks are reacting to inflation, causing long-term yields to climb while breakevens remain within a narrow range.
Strong economic growth, AI-related capital expenditure, and contained term premia are also contributing to the upward trend in real rates. The market anticipates up to an additional 75 basis points of policy tightening during the current cycle, which continues to push bond yields higher across the curve. The perception of central bank credibility, rather than long-term inflation, is the key driver behind the higher yields.
Real yields across the yield curve have risen between 80 and 113 basis points, with the exception of the 2-year real yield, which has increased by over 170 basis points. Other factors contributing to the higher yields include robust economic growth and increased capital expenditure in the AI and technology sectors.
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