Chart of the Week: Watermelon Sugar

US government bonds have become more attractive because their higher yields increasingly reflect real returns rather than rising inflation expectations.

• The yield on 10-year US Treasuries has climbed to around 5.1% in 2026.
• The inflation breakeven component has remained relatively stable at about 2.4%, while the real yield has risen to approximately 2.7%.
• Real yields were negative in 2020 and 2021, meaning bond income failed to keep pace with expected inflation and pushed investors toward greater risk.
• A more resilient-than-expected US economy, fading recession fears and expectations that interest rates may stay higher for longer have driven real yields higher.
• Real yields have recently reached their highest levels since the Global Financial Crisis, affecting mortgage rates, corporate borrowing costs, government financing and equity markets.

Takeaway: Government bonds once again offer the potential for meaningful above-inflation returns, income and diversification, although higher real yields also influence financing conditions across financial markets.