Behind the Yield
Behind the Yield: October 16, 2025
The Return of the Real Rate: Why 2% Feels Higher Than It Looks - October 17, 2025
The Return of the Real Rate: Why 2% Feels Higher Than It Looks - October 17, 2025
For the first time in two decades, investors are collecting a real yield on plain-vanilla Treasurys. The ten-year note is trading on a yield of about 4.3 percent and market-based inflation expectations are firmly in the neighborhood of 2.3 percent. Which is to say, investors are finally being paid above inflation for holding what is still the world’s safest asset. That may not sound like much, but for most of the last quarter century it wasn’t. Real yields were hovering close to zero or even in negative territory, which makes today unfamiliar ground for many advisers and their clients.
A Short History of Real Yields
Real yields have been consistently lower than zero since the early 2000s. After the financial crisis of 2008, quantitative easing and zero-rate policy compressed the real risk-free return. For close to a decade, owning Treasuries cost you purchasing power in real terms. Inflation was low, but yields lower still. The result was a generation of investors whose thinking was conditioned to believe that safe meant symbolic, as in line item for ballast, not return.
That flipped after 2022. Inflation spiked to levels not observed in four decades, and the Fed had to yank back more than a decade of near-zero policy setting. Real yields get paid when nominal yields rise enough, and price pressures become easy enough. The shift in the 10-year TIPS from −1 percent to a little more than 2 percent has been more like a correction; it’s been practically a reset, bringing back for the first time since the era of Volcker an actual return on safety.
Why This Matters for Advisors
For advisers, real yields amount to more than just a data point. They’ve changed the role fixed income plays in a portfolio. With inflation moderating and nominal Treasury yields so elevated, even plain-old Treasuries now offer positive returns after inflation. With a real yield of two percent, clients can earn return that rises along with prices without incurring credit risk or too much duration. It also sets the hurdle rate to a higher standard for markets, pushing equities, private credit and alternatives to compete with real risk-free return.
From a practical point of view, this is nothing short of a game changer. Advisers are back to being able to portray fixed income as a driver of real return and not simply a volatility cushion. Bonds are adding to purchasing power, not just preserving it. Laddering strategies make sense once again, and duration becomes a weapon to manage, not something to be feared. For the first time in years, that income side of the portfolio is doing actual work.
The Takeaway
That’s the tangible benefit of safety. Investors are being paid to lend money to the U.S. government for the first time in a generation, after accounting for inflation. It’s not that the world has become predictable, it’s that a bond market is, at last, sending a clear signal.
For advisers, herein lies the rub: real rates are back, and they’re recasting how clients are thinking about bonds.
Get Behind the Yield free by email. Short enough to read before your first meeting, specific enough to use in it. Subscribe here.
Need CE hours? Six self-study bond courses, accepted by CFP Board. See the courses.