Real Yields Highest Since ‘94 Aid Treasury $115 Billion Auction

Bloomberg reports:

The highest inflation-adjusted yields in 15 years are helping provide the Treasury with record demand at auctions as the U.S. prepares to sell $115 billion of notes this week.

Treasuries are the cheapest relative to inflation since 1994 after consumer prices fell 1.4 percent in June from a year earlier. The real yield, or the difference between rates on government securities and inflation, for 10-year notes was 5.06 percent on July 24, compared with an average of 2.74 percent over the past 20 years.

The gap helps explain why investors are buying bonds after losing 4.8 percent this year, the steepest decline on record, according to Merrill Lynch & Co. indexes that date back to 1978. While Treasury will probably sell an unprecedented $2 trillion of debt this year, Federal Reserve Chairman Ben S. Bernanke said last week that limited inflation pressures will allow policy makers to keep interest rates near zero.

Here's a look at the 30 Year Bond Futures chart. Here's a look at the yield curve.