Deltec Think About This Will Repression Hit The Inflation Target? | Page 3

Think About This
INVESTMENT RESEARCH
GOLD VS. US 10 YEAR GOVT. REAL YIELD
2,200
2,000
1,800
1,600
1,400
1,200
1,000
2010 2012 2014 2016 2018 2020
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Gold
US 10 Year Govt Real Yield
Sources: Bloomberg, Deltec
The same logic can be applied to many other ‘real’
and ‘alternative’ assets. This can include other
supply constrained commodities, inflation linked
assets like infrastructure and farmland, and even
newly imagined digital assets like cryptocurrencies.
These assets are core holdings for us and we
use them to express our view that as policy
makers struggle to revive growth and employment,
they are going to continue with their campaign
of ‘Maximum Monetisation’.
Starting with Government bond yields, the
textbooks say that government debt yields
should reflect nominal GDP growth. But, in their
efforts to stimulate the economy, Central Banks
are expanding their balance sheets and buying
bonds, lowering the yields offered in the process.
The result is that, even before the pandemic,
government bond yields were only 10 basis
points above the Fed Funds rate, bearing little
relationship to growth.
This makes US real yields some of the most
important charts we look at. We look at US
government debt yields over a range of maturities;
and from these we subtract reported inflation and
inflation expectations derived using several different
methodologies. But what drives the real yield?
And what policies and economic circumstances
determine changes in this measure?
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