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There's More Juice Left In The Trade For Higher Real Yields
Authored by Simon White, Bloomberg macro strategist,
TIPS continue to mean revert and risk overshooting to the downside, leading to a continuation in rising real yields.
Real yields in the US have had a remarkably good run, with 10-year reals bottoming at about 1.72% at the end of March and rising to near 20-year highs at 2.43% currently. That’s even more remarkable when you consider that oil has on net risen almost 70% over the same period.
TIPS were overbought coming into the Iran war, but are now back to their mean. As the chart below shows, TIPS’ annual return is a mean-reverting series, with a decaying mean. Like a pendulum, when the series gets back to its mean it typically overshoots.
If that was to recur, then we should expect real yields to keep rising.
That is consistent with the message from my leading indicator for real yields. Its inputs include G10 excess liquidity and the Federal Reserve’s policy rate, and it anticipates the 10-year real yield rising more over the next three months or so.
Short positioning in TIPS looks elevated, based on the short interest of the iShares TIP ETF. We’re not likely to see significant short covering while momentum is in the bears’ favour.
In shares terms, the short interest is not as high as it was during the inflation flare of 2021/22 and subsequent rapid Fed tightening, but the short interest ratio, ie normalised by the shares outstanding, is at a similar level to what it was back then.
There are different drivers this time. Fed pricing is not as big a part of it, with only two and a bit rate hikes expected over the next year. Instead it’s a combination of rising real growth expectations and greater competition for capital, driven by the seemingly insatiable demand for investment in AI infrastructure.
A good slug of the rise in real yields this year, however, also comes from increasing risk premium for TIPS. No wonder short positioning is high.
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Bitter Harry and Meghan Fire Off Blunt Statement After King Charles Blocks Royal Return
King Charles delivered a humiliating public slapdown to Prince Harry and Meghan Markle yesterday after the couple's surprise return to Britain, making it crystal clear they remain firmly out of the Royal Family.
Buckingham Palace issued a stinging letter on Monday spelling out that the Duke and Duchess of Sussex have no official role, no working duties and no hope of a half-in, half-out arrangement.
"It is well known that in January 2020 the Duke and Duchess stepped down from undertaking representative duties on behalf of The Sovereign, and are no longer working Members of The Royal Family," read the letter sent by the Lord Chamberlain, the royal household's top official. "This position, distinct from the State and Royal duties undertaken by the working Royal Family, and with the personal latitude it brings the couple in respect of financial independence and protection of their privacy as they would wish, will continue to be fully respected."
Buckingham Palace stressed that simply pitching up on British soil does not restore their royal standing.
"It follows that there is no change to the current status of the Duke and Duchess of Sussex," the letter added. "Their styles as His and Her Royal Highness remain in abeyance and are not used. The charitable work of the Duke and Duchess is a personal matter for them both and undertaken in their private capacity. In short, their position is akin to private citizens with commercial and charitable interests."
A spokesman for Harry and Meghan responded to the letter with a terse statement, claiming that the pair had been blindsided.
"We were a little surprised not to have been told about this in advance. The publication of the letter had caught the couple off guard," their statement reads.
However, Palace officials only told them of the King's position an hour before the letter was published, according to GB News.
Meanwhile, some royal watchers said that no one should be remotely shocked by the king's actions.
While Harry and Meghan are returning, they are not regaining official royal roles," British royals expert Hilary Fordwich told Fox News. "Nor was there any agreement to a 'half-in, half-out' construct. They have been thwarted by trying to do what they agreed to with Queen Elizabeth II."
Tyler Durden Wed, 09/09/2026 - 07:45