Gold vs. Treasuries Amidst Negative Real Yields in the Debt Markets

Posted - December 28, 2022
Gold vs. Treasuries Amidst Negative Real Yields in the Debt Markets

Last summer and fall, amid concerns of a coming recession and even before the Russian fiasco in Ukraine, there emerged a curious divergence between inflation and a decline in nominal bond yields. According to this is more than a bit odd as this trend tends to go against modern economic theory. 

To the point, when the price of bonds declines, yields should increase. Real yield is calculated by subtracting expected annual inflation from a bond’s nominal yield, so a negative yield means that inflation expectations are higher than a bond’s nominal yield. It basically tells bond investors how much compensation for inflation they can actually get from a bond. 

What Does a Negative Yield Mean to Gold or Other Precious Metals?

According to the Corporate Finance Institute a negative-yielding bond is a bond that causes bondholders to lose money when they mature. Clearly, this is not the want of the investor. However, there is a bit of a positive here and segues us to looking at gold vs. treasuries amidst negative real yields in the debt markets. 

Simply put, gold is typically bullish as it comes to a negative yield. Whereas it might not be the best time to invest in bonds, it generally means that gold is well worth the look while the yields hold in negative territory. Of course, there’s almost never a bad time to take a close look at gold. 

And that proves to be the issue as it concerns investing in bonds, stocks or even crypto. In troubling times it’s almost anyone’s guess. The markets can quickly become volatile and churn out more losers than winners. However, history has proven that the ‘steady as she goes’ valuation of gold and other precious metals almost always allows for a proper pay off. 

This past spring the 10-year real yield returned a positive number for the first time since March of 2020. Yes, worries of inflation, especially on the heels of the Russian invasion of Ukraine, were glaring but the suggestion here is that the yield is finally gaining ground. This bodes well for bondholders but it shouldn’t deter one from keeping a sharp eye on gold and other precious metals. 

As of late, there are signs that the inflationary period is leveling out, but some indicators still hold and easily suggest that we have a tough road ahead. So, volatility may still rule the day. There may still be a lot of ups and downs in the coming year and treasuries still have a lot of ground to gain before they’re right again. This is why gold still, and almost always, stands tall and ready as a proper investment in uncertain times. 

In your gold vs. treasuries assessment you may find that a bit of both is the winning formula. Diversification is key and your due diligence to whatever decision you make is most important. 

About The Author

Follow @herobullion

Hero Bullion provides an environment that is informative and safe for those looking to own physical gold and silver bullion as an investment. We love helping folks at all stages throughout their bullion journey making progress towards acheiving their financial goals. Whether you are a seasoned bullion investor or brand new to the game of gold and silver bullion ownership, we're here to help and serve you in any way we can.