Oct 28, 2026 · 6 min · 9 segments
Brent crude rose 86% between January and October. Yet the bond market's ten-year inflation expectation barely moved. What moved was the real interest rate: of the 81-basis-point rise in the US 10-year…
On the 23rd of October, it was 5%.
That's a rise of 81 basis points.
Now split that yield in two.
One part is the real yield, the return after inflation.
You can read it from inflation-protected treasuries.
It rose from about 1.9% to about 2.7%.
That's 72 of the 81 basis points.
The other part is break-even inflation, what the market expects inflation to average.
It went from 2.25% to 2.34%.
Nine basis points.
It wasn't always this way.
In the spring oil spike, inflation expectations did rise to 2.5% in early May.
But since the summer, the real rate has done the work.
Why does that matter? Because inflation can be partly hedged.
Real assets can pass some of it on.
A higher real discount rate is harder to escape.
It lowers the value of long-dated cash flows across the board.
Infrastructure, property, private equity.
The long end of the stock market.
There's a winner, too.
For defined benefit pension plans, higher yields lower the present value of their liabilities.
So many plans look better funded on paper.
And there's a cost elsewhere.
Reuters reported that Bank of America's unrealized bond losses rose to $109 billion at the end of September.
On the 23rd of October, it was 5%.
That's a rise of 81 basis points.
Now split that yield in two.
One part is the real yield, the return after inflation.
You can read it from inflation-protected treasuries.
It rose from about 1.9% to about 2.7%.
That's 72 of the 81 basis points.
The other part is break-even inflation, what the market expects inflation to average.
It went from 2.25% to 2.34%.
Nine basis points.
It wasn't always this way.
In the spring oil spike, inflation expectations did rise to 2.5% in early May.
But since the summer, the real rate has done the work.
Why does that matter? Because inflation can be partly hedged.
Real assets can pass some of it on.
A higher real discount rate is harder to escape.
It lowers the value of long-dated cash flows across the board.
Infrastructure, property, private equity.
The long end of the stock market.
There's a winner, too.
For defined benefit pension plans, higher yields lower the present value of their liabilities.
So many plans look better funded on paper.
And there's a cost elsewhere.
Reuters reported that Bank of America's unrealized bond losses rose to $109 billion at the end of September.
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