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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

Dion Rabouin, author of Markets
Jan 28, 2021 - Economy & Business

How GameStop exposed the market

Illustration: Eniola Odetunde/Axios

Retail traders have found a cheat code for the stock market, and barring some major action from regulatory authorities or a massive turn in their favored companies, they're going to keep using it to score "tendies" and turn Wall Street on its head.

What's happening: The share prices of companies like GameStop are rocketing higher, based largely on the social media organizing of a 3-million strong group of Redditors who are eagerly piling into companies that big hedge funds are short selling, or betting will fall in price.

Dion Rabouin, author of Markets
Jan 28, 2021 - Economy & Business

Apple raked in $111 billion in revenue in a single quarter

Expand chart
Data: FactSet; Chart: Axios Visuals

Big Tech had a strong start to earnings season, as the S&P 500's heavy hitters reported Wednesday after market close.

What happened: Spurred by strong sales of the latest iPhones, Apple had its strongest quarter ever, raking in $111.4 billion in revenue for the three months ended Dec. 31, far outpacing expectations.

52 mins ago - Health

Biden administration to lift travel ban for fully vaccinated international travelers

Photo: Win McNamee/Getty Images

White House COVID-19 response coordinator Jeff Zients announced on Monday that the Biden administration will allow fully vaccinated travelers from around the world to enter the U.S. beginning in November.

Why it matters: The announcement comes as President Biden seeks commitments from countries to donate vaccines to the global COVAX initiative. He is expected to host a COVID summit on the sidelines of the UN General Assembly this week, and many of the countries attending have expressed frustration with the travel ban.

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