Real interest rates are ultimately what investors care about. Nominal Rates (The yields that the bond offers) minus the inflation rate is what you really are getting in a return. We peruse the world to see how the US stacks up against negative rate bonds. "Really" the US has amongst the lowest yields in the world. That's why we think we saw the dollar sell off post-Fed. This magnifies the fact that inflation is the stock market risk (NYSEARCA:SPY).
First let's simply define real rates:
Nominal Rate (The "coupon") minus Inflation = Real Interest Rate
Explanation Of Real Rates:
When I hold a bond I care about the future cash flows that I am going to receive. Ultimately I am going to use that money received in the future to buy things I need and want. Should I buy them now or should I invest my money, hopefully have more of it, and buy them in the future? That depends. What do they cost me now and what will they cost me in the future? If they are not going to cost me much more in the future I invest my money now. If they are going to cost me much more in the future maybe I don't invest that money and buy them now when those goods are still cheap.
That's the "real" idea behind real rates. All bond investors care about inflation and it's a main factor driving bond prices.
If inflation is higher I will sell those bonds to buy what I need now while goods are still cheap. That bond selling is a market function where inflation causes bond selling. At the new lower bond price and the same coupon, yield adjusts to a higher rate. That's how markets work.
That's the inflation impact
So while
