Update: The Real 10-Year Yield

Last week was filled with action. Rising bond yields even featured a dramatic Wayne Angell moment, but the week closed with a surge of another kind:

US Stocks Surge On Tame Inflation Figures
NEW YORK (Dow Jones)–Stocks stormed out of the gate Friday after government data showed muted inflation, with Intel and Nvidia leading the charge, though Adobe Systems lagged.
…The surge came after a long-awaited report on U.S. consumer prices showed that inflation remains under wraps, giving investors hope that the Federal Reserve won’t be inspired to raise interest rates.
The consumer price index rose 0.7% in May, the fastest pace in almost two years on sharply higher energy prices, the Labor Department said Friday. Yet the core CPI, which excludes volatile food and energy prices, advanced just 0.1%, down from the previous month’s 0.2% increase, and below economists’ expectation of 0.2%.
“The core CPI gave the market a reason to rally, and rally big,” said Quincy Krosby, chief investment strategist for The Hartford, though she added that recent stock-market volatility will likely continue. “We are in a trader’s market right now, and this is the kind of market that could give back, and give back even more than what we have gained.”
Phil Dow, director of equity strategy at RBC DainRauscher, cautioned that investors are feeling a general skepticism toward the economy and the core CPI figure can be deceiving because it excludes essentials that consumers use every day – energy and food. “The government says there is no inflation, but the average person feels inflation.”

Real Yield on the 10-Year T Note

With the May figure out, let’s update the charts.
Consumer Price Index vs. 10-Year Yield since 1962

Nominal 10-Year T-Note yield vs. CPI-U since 1962

Real 10-Year T-Note yield since 1962
Real 10-Year T-Note yield since 1962

Real 10-Year T-Note yield since 2000
Real 10-Year T-Note yield since 2000

How to: Subtract the 12-month change in the consumer price index from the nominal CBOE 10-year Treasury Note yield ($TNX), and presto, we have a back-of-the-envelope calculation of the real 10-year yield.
We use the CPI-U: all urban consumers, all items, including food and energy, non-seasonally adjusted, 1982-1984=100.