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Expand chart
Data: St. Louis Fed; Chart: Axios Visuals

The real yield on the U.S. 10-year Treasury note fell to its lowest level on record Monday, declining to -1.11%, meaning that, after accounting for expected inflation, holding a 10-year U.S. Treasury bond to maturity will mean losing more than 1%.

Why it matters: It's the latest entreaty in the war on savers. Central bank policy is rewarding risk-taking and punishing saving at a record level even as inflation expectations continue to rise.

What it means: The negative real yield on government debt encourages investors to move their money into risky assets like stocks in order to earn a return.

  • Real yields have consistently declined despite inflation expectations rising, an unusual phenomenon.
  • On Monday, the expected breakeven inflation rate on 5-year, 10-year and 30-year Treasuries all rose above 2%, the Fed's longtime inflation target, and their highest levels in more than two years.

Yes, but: Despite the unprecedented environment, uncertainty and fear have kept most Americans piling into bonds and savings accounts.

  • U.S. companies and municipalities issued a record amount of debt last year at record low rates, and investors bought $183 billion worth of bond funds between January and November. They also held $4.3 trillion in money market funds, according to data from the Investment Company Institute.
  • ICI data showed investors also sold $569 billion worth of equity funds during that time.

One level deeper: The U.S. personal savings rate has declined from a record 33.7% in April but was still at the highest rate since 1981 in November, even though the average interest rate on a retail savings account was 0.05% in November, according to the FDIC.

Watch this space: U.S. government debt pays significantly more than comparable European bonds on a nominal basis, thanks to the European Central Bank taking interest rates to -0.5%. But when inflation is factored in, U.S. Treasuries now pay — or cost — effectively the same as their European counterparts, Kathy Jones, chief fixed income strategist at Schwab, tells Axios.

  • "It's a natural outgrowth of Fed policy. They didn’t want to lower nominal yields at the short end [below 0%], so what’s happened is real yields have gone into negative territory," she says.
  • "It's a way for the Fed to do negative policy without negative yields."

Between the lines: Breakeven rates rose and real yields sank to new lows despite a down day for U.S. equity prices and minimal movement from the dollar — two assets that have largely moved in line with breakeven inflation expectations.

Go deeper

Big bank bond trading soared in 2020

Data: Analysis of company filings; Chart: Axios Visuals

The pandemic helped to pull big banks’ bond trading revenue out of a multi-year slump.

Why it matters: Revenue within the so-called fixed income, currency and commodity (FICC) divisions has been slowing for years.

Dan Primack, author of Pro Rata
36 mins ago - Economy & Business

Scoop: Red Sox strike out on deal to go public

Illustration: Sarah Grillo/Axios

The parent company of the Boston Red Sox and Liverpool F.C. has ended talks to sell a minority ownership stake to RedBall Acquisition, a SPAC formed by longtime baseball executive Billy Beane and investor Gerry Cardinale, Axios has learned from multiple sources. An alternative investment, structured more like private equity, remains possible.

Why it matters: Red Sox fans won't be able to buy stock in the team any time soon.

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