How are real rates calculated?According to the article, what do investors tend to do as a result of higher rates?Who benefits from rising real yields?Who doesn't benefit from rising real yields?How may higher real yields become a problem for the stock market? What Are Real Yields, and Why Do They Matter?Summary: Now that inflation has subsided somewhat, the market is experiencingfavorable real rates. Positive real rates are good for savers, but potentiallyproblematic for the equity markets. Real rates, the difference between on-the-runtreasuries and inflation (most recently auctioned bond), in June 2022 was -6.16(2.94 - 9.1). This meant that savers were earning a negative yield on their fixed-income investments. Today, real rates are the highest they have been since 2009.A welcome change especially for retirees living on a fixed income. However, thatassumes that retirees have rotated their investments into fixed income. Since therates on bonds were so low, retirees were forced to invest in riskier assets likecommon stock to get a return that kept up with inflation. As higher rates enticemore and more investors to sell their riskier assets, those retirees who have notrotated their assets back into fixed income could lose principal.

Inflation refers to the increase in the average price level of an economy over a period of time. A…

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How are real rates calculated? According to the article, what do investors tend to do as a result of higher rat Who benefits from rising real yields? Who doesn't benefit from rising real yields?

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.2P

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Question

How are real rates calculated?
According to the article, what do investors tend to do as a result of higher rates?
Who benefits from rising real yields?
Who doesn't benefit from rising real yields?
How may higher real yields become a problem for the stock market?

What Are Real Yields, and Why Do They Matter?
Summary: Now that inflation has subsided somewhat, the market is experiencing
favorable real rates. Positive real rates are good for savers, but potentially
problematic for the equity markets. Real rates, the difference between on-the-run
treasuries and inflation (most recently auctioned bond), in June 2022 was -6.16
(2.94 - 9.1). This meant that savers were earning a negative yield on their fixed-
income investments. Today, real rates are the highest they have been since 2009.
A welcome change especially for retirees living on a fixed income. However, that
assumes that retirees have rotated their investments into fixed income. Since the
rates on bonds were so low, retirees were forced to invest in riskier assets like
common stock to get a return that kept up with inflation. As higher rates entice
more and more investors to sell their riskier assets, those retirees who have not
rotated their assets back into fixed income could lose principal.

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