Formula & Calculation Mechanism
Nominal 10Y Treasury Yield minus 10-Year Inflation Breakeven Rate
Real yields measure the true return required by investors after accounting for inflation. Higher real yields tighten financial conditions.
Market Impact on US Equities & S&P 500
TIPS real yields above 2.0% exert strong gravity on stock P/E ratios; real rates falling below 1.5% provide liquidity fuel for stock market rallies.
Historical Precedents & Bull/Bear Regimes
During 2020-2021, TIPS real yields dipped to negative -1.0%, propelling S&P 500 P/E multiples past 25x.