Markets are not being driven by inflation headlines or Fed commentary. Real rates are the dominant force.
The 10-year Treasury yields about 4.7%, while inflation expectations are near 2.3%, implying a real yield of roughly 2.4%–2.5%.
That ~2.4% real risk-free return is now the baseline cost of long-term capital. Everything is priced against it.
- Equities: Stocks must compete with a guaranteed real return, increasing discount rates and raising the bar for growth and margins.
- Capital projects (AI, manufacturing, infrastructure): Long-duration investments must clear a ~2.4% real hurdle, tightening funding and reducing marginal projects.
- Real estate: Higher real yields raise financing costs, lowering what buyers can pay for the same cash flows.
- Government debt: The U.S. borrows in a market where investors can earn ~2.4% real risk-free, pushing up yields and long-term interest costs.
High real rates mean expensive capital across the entire economy.
This is not about short-term Fed moves or Treasury demand. It’s a broad repricing of long-term money, and it matters more for asset values than a 25 bps rate cut.
It's impressive that we've finally gotten off zero, but I wouldn't call 2.4% a "real" return. Personally, I use ~6% for my inflation estimates. I find this is more in line with broad money supply growth, from which everything else gets priced. Sure, some products/services/commodities increase at much less than this rate, but elsewhere - where there's real scarcity - that deficit is often made up (desirable real estate, education, healthcare, etc.)
I find it wild that there are people and institutions out there willing to lock into a 30 year term for only 4.7%.
I only use “real” in the conventional market sense that sovereigns, corporations and institutions use to price assets.
For my own framework, I’ve started watching three separate things:
Right now, M2 is still expanding, which is a positive for Bitcoin. But that does not mean the marginal liquidity is flowing into financial assets. More financing capacity can be absorbed by government borrowing and real-economy investment, while real yields remain high and marginal funding stays expensive.
So I see money-supply growth as a tailwind for Bitcoin, and expensive capital as a headwind.
In my view, the key question is which one is stronger at the margin.