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from good news to bad? We believe this has to do with the pace and the cause. Central banks would be concerned if they saw more dis- orderly markets (like March 2020). While real yields remain nega- tive, the Fed is likely to remain sanguine, but it will not want to see a repeat of the taper tantrum of 2013 when real yields rose sharply.
Higher real rates not only increase costs of debt finance but also affect credit spreads and equity market valuations, which tighten financial conditions. Ultimately, a rise in real yields may end up being self-limiting if it feeds through to a significant correction in risk assets.
Figure 1: Inflation and commodity prices %
-3 -2 -1 0 1 2 3
2005 2007 2009 2011
G7 CPI yoy Minus Core CPI % yoy S&P GSCI Commodity Price Index % yoy (RHS) Assuming Stable Commodity Prices (RHS)
20 40 60 80
-80 -60 -40 -20 0
20132015201720192021 Source: Bloomberg, Janus Henderson Investors, 1 January 2005 to 1 January 2022, as of 15 March 2021 %
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