The predictive power of real government bond yields

Real government bond yields are indicators of standard market risk premia and implicit subsidies. They can be estimated by simply subtracting an estimate of inflation expectations from standard yields. And for credible monetary policy regimes, inflation expectations can be estimated based on concurrent information on recent CPI trends and the future inflation target.

For a data panel of developed markets since 2000, real yields have displayed strong predictive power for subsequent monthly and quarterly government bond returns. Simple real yield-based strategies have added material economic value in 2000-2023 by guiding both intertemporal and cross-country risk allocation.

View full post based on proprietary research of Macrosynergy.

A Jupyter notebook for audit and replication of the research results can be downloaded here. The notebook operation requires access to J.P. Morgan DataQuery to download data from JPMaQS, a premium service of quantamental indicators. J.P. Morgan offers free trials for institutional clients.

Also, an academic research support program sponsors data sets for relevant projects.