Where Interest Rates Might Be If There Were No QE

Steven Perlberg

Real 10-year yields in the U.S. are 150 basis points lower than where they should be, according to this chart from Guggenheim.

The University of Michigan Consumer Sentiment Index — which   dropped to 82.7 from  84.5 in May — usually correlates with TIPS yields.

That is, up until the onset of the Fed's QE program. Bond purchases  have been keeping real yields lower than they should be, despite generally rising consumer confidence.

From Guggenheim:

The correlation broke down, however, in 4Q2011, as a result of the Federal Reserve’s asset purchase program. The yield on 10-year Treasuries would be roughly 150 basis points higher than it is today if the market was not being distorted by Ponzi (uneconomic) buying.

The chart below shows the correlation between consumer confidence and real yields.

10 year yields consumer confidence
10 year yields consumer confidence

Guggenheim

Until recently yields were negative , meaning that investors were paying the U.S. government for the dubious honor of holding its debt.



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