A hawkish turn by the Federal Reserve is eroding a key support for U.S. stocks, as real yields climb into positive territory for the first time in two years.
Yields on the 10-year Treasury Inflation-Protected Securities (TIPS) — also known as real yields because they subtract projected inflation from the nominal yield on Treasury securities — had been in negative territory since March 2020, when the Federal Reserve slashed interest rates to near zero. That changed on Tuesday, when real yields ticked above zero.
Negative real yields have meant that an investor would have lost money on an annualized basis when buying a 10-year Treasury note, adjusted for inflation. That dynamic has helped divert money from U.S. government bonds and into a broad spectrum of comparatively riskier assets, including stocks, helping the S&P 500 more than double from its post-pandemic low.