Here is a great chart from Bloomberg showing how the real rates have turned more negative with the recent fall in US treasury yields and the rise in the US inflation. The 30-year T-bonds are almost -3%. Note that subsequent CPI numbers make this chart slightly worse.
The black line in the chart shows real” inflation-adjusted Treasury yield curve as of December 2019 before the Fed’s assorted pandemic programs, and the green line is showing the same as of June 2021).
The Fed is incentivizing everyone to leverage up and everyone (especially corporations) is responding. The problem is some of these borrowers may be in good condition now but won’t be when something goes wrong. What happens when borrowers can’t repay it’s bad for the lenders, too. Hmmmm SUBPRIME crises comes to mind.
History tells us that in the short term and may be even medium term this is likely to encourage corporate buy backs and therefore good for equities. It also makes gold and other real asset attractive fuelling further asset price inflation. Hmmm so are we going to see more inequality in the distribution of wealth. Surely this cannot continue as the demographic changes gives younger generation more political voice.
Collection of Thoughts 