The US now has the worst combination of outcomes, poor growth and rising inflation.  Bond yields are now the most negative they have been in almost forty years.  Only in the 1970s during stagflationary episodes were real yields this negative.    We don’t see a high inflation episode like the 1970s, but we do see moderate CPI that is higher than bond yields of all maturities.  Poor growth and stubborn inflation is bad for stocks and bonds. Bond yields have no real room to fall in a growth slowdown.  Negative real yields, though, are good for gold, commodities, and other real assets, as the 1970s showed.

img1Source: Bloomberg and Variant Perception

As you can see from the next chart, the ten year bond yield is now more than 100bps lower than Cleveland Median CPI or Core Sticky CPI, and it is slightly below Core PCE, which understates inflation.   Real yields are even more negative if you look at shorter yields and the Fed Funds rate.  The Fed Funds rate is now more than 200bps below Core, Median and Sticky measures of CPI, and 5 year and 2 year yields are deeply negative as well.

img2

Source: Bloomberg and Variant Perception