Even if cash flow considerations favor unindexed debt, rough estimates of the tax effects on the difference between real and nominal yields
are calculable for the average investor, and hence approximate adjustments can be made.
Treasuries (Treasuries) as break-even spreads (the difference between 10-year nominal yields
and 10-year U.
Short-term bond yields were also strong, but long-term nominal yields
fell due to lower inflationary expectations.
Third, term structure models assume stationarity for nominal yields
But for now the spike in nominal yields
has created an unfavourable environment.
In bond markets, nominal yields
have started to rise in the developed world but could go much further - real yields still average just 0.
Even nontraditional investors, such as foreigners who can't benefit from the tax-exempt status of most munis, are attracted to the muni market because of relatively high nominal yields
compared to those of overseas, said Thomas Casey, senior portfolio manager, Tax-Sensitive Strategies at Standish Mellon Asset Management.
Additionally, as Haubrich, Pennacchi and Ritchken (2012) claim, real yields on ILBs can be derived as the difference between equivalent maturity nominal yields
and inflation swap rates, and these synthetic real yields are less prone to uncertain changes in liquidity than TIPS yields.
Indeed, about $6 trillion worth of government bonds around the world today have negative nominal yields
Meanwhile, the ECB is expected to introduce additional unconventional measures to drive rates in the opposite direction, even if that means putting further downward pressure on some government bonds that are already trading at negative nominal yields
We focus on forecasts of the quarterly average level of 7 different interest rates: the federal funds rate and the nominal yields
of Treasury securities at 6 different maturities between 3 months and 10 years.
Adrian Hartshorn, Senior Partner in Mercer s Financial Strategy Group said, Although the improvement in nominal yields
is welcome, any decision to lock into historically low yields by hedging at current levels requires careful consideration, and should be balanced against other hedging opportunities.