Nominal vs. Real Bond Yield

Yardeni Research, Inc.

March 18, 2012

Dr. Edward Yardeni 516-972-7683 [email protected]

Debbie Johnson 480-664-1333 [email protected]

Please visit our sites at www.yardeni.com blog.yardeni.com

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Table Of Contents

Table Of Contents

Bond Yield & Expected Inflation Bond Yield & GDP

March 18, 2012 / Nominal vs. Real Bond Yield

1 2

Yardeni Research, Inc. www.yardeni.com

- Bond Yield & Expected Inflation Figure 1. 6.0 5.5

6.0

US TREASURY 10-YEAR BOND YIELD: DAILY

5.5

(percent)

5.0

5.0

4.5

4.5

4.0

4.0

3.5

3.5

10-Year Bond Yield

3.0

3.0

2.5

3/16

2.0

2.0

1.5

1.5

10-Year TIPS Yield* (daily)

1.0 .5

1.0 .5

.0

3/16

-.5

3.0

.0 -.5

2005 3.3

2.5

2006

2007

2008

2009

2010

2011

2012 3.3

EXPECTED INFLATION IN 10-YEAR TIPS

3.0

2.7

2.7 3/16

2.4 2.1

2.4 2.1

1.8

Jan

10-Year Bond Yield Minus 10-Year Tips

1.5

1.8 1.5

PCED Ex Food & Energy (yearly percent change)

1.2 .9

1.2 .9

.6

.6

.3

.3

.0

.0 yardeni.com

-.3 2005 4

2006

2007

2008

2009

2010

2011

-.3

2012 4

EXPECTED INFLATION

3

3 3/16

2

2

1

1

0

0

-1 -2

Expected Inflation in 5-year TIPS** Expected Inflation in 10-year TIPS**

-1 -2 yardeni.com

-3 2005 2006 2007 2008 2009 2010 2011 *Yields on Treasury Inflation Protected Securities (TIPS) adjused to constant maturities. **Nominal minus TIPS yield. Source: Federal Reserve System, US Treasury and US Department of Commerce, Bureau of Economic Analysis.

Page 1 / March 18, 2012 / Nominal vs. Real Bond Yield

-3

2012

Yardeni Research, Inc. www.yardeni.com

- Bond Yield & GDP Figure 2. 18

18

BOND YIELD & NOMINAL GDP

16

16

14

14

10-Year Government Bond Yield (percent, average = 7.1%)

12 10

12 10

8

8

6

6

4

GDP (yearly percent change, average = 7.3%)

2 0

Q4

4

Feb

2 0

-2 -4

-2 yardeni.com 62

12 11 10 9 8 7 6 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 -7

64

66

-4 68

70

72

74

76

78

80

82

84

86

88

90

92

94

96

98

00

02

04

06

08

10

12

14

BOND YIELD & NOMINAL GDP* 1980-1994 average = plus 246 basis points 1962-1979 average = minus 269 basis points

Q4

1995-2002 average = plus 71 basis points yardeni.com 62

64

66

68

70

72

74

76

78

80

82

84

86

88

90

92

94

96

98

00

02

04

06

08

10

12

12 11 10 9 8 7 6 5 4 3 2 1 0 -1 -2 -3 -4 -5 -6 -7

14

3

16

3/15

14

2 3/9 12

Expected Inflation in 10-year TIPS

1

10

S&P 500 P/E yardeni.com

0

8

2007 2008 2009 2010 2011 2012 *10-year bond yield minus yearly percent change in nominal GDP. Source: US Department of Commerce, Bureau of Economic Analysis, and Board of Governors of the Federal Reserve System.

Page 2 / March 18, 2012 / Nominal vs. Real Bond Yield

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