Real interest rate
Real rate
What it is
Nominal interest rate minus expected inflation. Represents the "true" return obtained in purchasing-power terms. The 10-year real rate (via TIPS) is the barometer of fundamental attractiveness for long-duration assets.
How to read it
A high real rate (>2%) pressures equity valuations and long bonds — money earns a lot risk-free. A negative real rate forces investors to take risk to preserve purchasing power (TINA — There Is No Alternative).
Common reference points
- Very negative — forced flight to risk< -1%
- Low-1 to +1%
- Historic norm+1 to +2%
- Restrictive> +2%
Orders of magnitude, not a rule: the same number does not mean the same thing from one sector to the next.
What it does not tell you
Expected inflation embedded in TIPS can diverge from realized inflation. And the real rate is pulled by nominal yield AND expectations — both can move together or against each other, blurring the signal.
Other measures — Macro — rates
Educational content. Polaris is not a registered investment adviser and makes no recommendation.