Real Yield

Every yield you see quoted on a bond is a nominal yield — the stated interest rate before accounting for inflation. The real yield strips inflation out. The simplest version of the formula: real yield ≈ nominal yield minus inflation rate. So if a bond yields 5% and inflation is running at 3%, the real yield is roughly 2% — meaning the investor gains about 2% in actual purchasing power (hypothetical example).

The most direct market measure of real yields comes from TIPS, whose yields are quoted in real terms by design. When TIPS yields are negative, investors are locking in a return that loses purchasing power — a situation that has historically coincided with aggressive central-bank easing or strong safe-haven demand for government debt.

Real yields matter far beyond the bond market. Gold, which pays no interest or dividend, is often described as competing with real yields. When real yields fall toward or below zero, the opportunity cost of holding gold — giving up a positive real return elsewhere — shrinks, and gold historically tends to attract more interest. When real yields rise sharply, that dynamic reverses. Traders typically watch the relationship between real yields and gold prices as one of the more consistent patterns in commodity markets.

For a fuller picture of how inflation expectations feed into yields, see breakeven inflation and follow live yield data on the bonds page. Real yield is also central to understanding carry trades in currency markets, where real interest-rate differentials between countries drive flows.