The real deal: the challenge of real interest rates
Understanding real interest rate dynamics as inflation transitions is vital, say Crédit Agricole traders
What is real? In an age of fake news and virtual reality, the answer can be elusive. In fixed income markets, however, the real interest rate is fundamentally straightforward. Yet there are important challenges in evaluation and hedging during periods of inflation transition.
The real interest rate is the difference between the nominal interest rate and the expected inflation rate. It represents the real cost of borrowing – and the real return on savings.
Empirically, when the inflation
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