Twice a year we undertake an analysis of real interest rates for our publications Consensus Forecasts and Asia Pacific Consensus Forecasts (in May and November) and the resulting tables and analysis are displayed in both the hard-copy and PDF versions of the publications. Our analysis focuses on both short-term and long-term interest rate expectations.
|Consensus Forecasts||Asia Pacific
|United States||Canada||Australia||New Zealand|
The table below shows a portion of the data from one of our surveys for 10-Year Real Interest Rates (from our November 2015 Consensus Forecasts survey), together with some textual analysis from the same publication.
|10-Year Real Interest Rates|
|All yields as of November 9, 2015||10-Yr Fixed Rate Instrument||Nominal 10-Yr Bond Yield, %||2016 Consensus Inflation Forecast||"Real" Interest Rate, %||10-Year Consensus Inflation Forecast||10-Year Real Interest Rate, %|
|United States||Treasury 2.00%, Aug. 2025||2.3||1.7||0.6||2.2||0.1|
|Japan||Govt, 0.40%, Sep. 2025||0.3||0.8||-0.5||1.4||-1.1|
|Germany||Bundesrepublik 1.00%, Aug. 2025||0.7||1.4||-0.7||1.7||-1.0|
|France||O.A.T., 1.00%, Nov. 2025||1.0||1.0||0.0||1.7||-0.7|
|UK||Treasury, 2.00%, Sep. 2025||2.0||1.3||0.7||2.0||0.0|
|Italy||B.T.P., 2.00%, Dec. 2025||1.8||0.9||0.9||1.7||0.1|
|Canada||Govt, 1.50%, Jun. 2026||1.9||1.9||0.0||2.0||-0.1|
Our regular analysis of real, i.e. inflation-adjusted, interest rates in twelve of the world’s industrialised economies compares the range of current long-term, 10-year government bond yields (see table above) with levels from our survey exactly six months ago. The chart (right) shows that 10-year real interest rates have edged down only modestly over the past six months. In the case of four (out of 12) countries featured in our survey, real 10-year yields have not changed from May 2015. Moreover, most remain mired firmly in negative territory. Part of the reason for this is the ongoing deflationary environment in the G-7 which has led to moderating inflation projections for the next 10 years. Long-term inflation should remain at or below 2% for an extended period for all but the United States, Sweden and Norway. The collapse in commodity values – particularly oil prices – over the past year has weighed heavily on headline CPIs, although a soft growth outlook amid slowing trade activity is also pulling down inflation. This, coupled with even sharper declines in nominal interest rates, have left only the US, Italy and Spain in positive real-interest-rate territory. UK real yields have dropped to 0%. Nominal 10-year bond yields have been driven lower on the back of extremely accommodative monetary policies from the Federal Reserve, Bank of Japan, Bank of England and, most recently, the European Central Bank which introduced its quantitative easing (QE) program in March 2015. Elsewhere, in January 2015, the Swiss National Bank surprised the markets by abandoning its currency cap against the euro (as forex reserves were becoming depleted). Swiss nominal bonds are already so low (at -0.2%) that investors are essentially paying to lend money in this currency. Despite the limited appetite for 0% government bond yields amongst investors, the resulting exit from the market has not pushed up nominal yields by much. Indeed, the resurgence in concerns over the global economic outlook following Chinese financial jitters have kept nominal rates low. Meanwhile, inflation remains depressed by world commodity prices which have not really recovered from last winter’s lows, even though they are denominated in a stronger US dollar.
A portion of text from Consensus Forecasts, November 9, 2015.