US real interest rates jump

Helped drive up USD, but bad news for some assets like gold

Chart of the Day


The big market move yesterday was the jump in bond yields in the US, with the 10-year rising by over 10 bp. As this chart shows, that move was mainly due to a 9bp rise in the real TIPS yield, while the inflation breakeven rose more modestly. That increase in real yields is important and, if sustained, could bring further bad news for assets like gold and also weigh on high-growth equities.


The Empire State manufacturing survey rose to 12.1 in February, although at that level it still looks consistent with a weaker ISM.

In Canada, home construction is booming. Housing starts rose to 282,000 annualized in January, up from 229,000 the previous month.

The latest estimate confirmed eurozone GDP fell by 0.6% QoQ in Q4. The economic sentiment indicator suggests the annual growth rate should rise from Q4's -5.0%.

The expectations component of the German ZEW survey rose to 71.2 in February, leaving it much stronger than current conditions.


As well as the 12 bp rise in the 10-year yield, the 5-year and 30-year US yields rose by 9 bp.

Moves elsewhere were smaller, with the 10-year rising by just 1 bp in Japan to 8 bp in Canada.

The rise in real rates drove a further decline in gold prices.

The shift in relative interest rates also helps to explain why the USD rose against most currencies yesterday.

Finally, it was another strong day for gasoline as the disruption from the cold weather in the US continued.

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