Government Bond Yields Have Surged, but Real Yields Are at Zero

 Government Bond Yields Have Surged, but Real Yields Are at Zero

Government bond yields have been rising steadily for the past three months, but they went parabolic in February. The yield on the 10-year Treasury touched 1.6% yesterday, up from 0.9% just a couple of months ago. That’s more than a two standard deviation move, suggesting the bond selloff may be overdone. Remember, bond yields rise as prices fall.

Yields have jumped so much, in fact, that they’re giving stocks a serious run for their money. The 10-year yield is now higher than the S&P 500 dividend yield, which may have added to the selling pressure that cost stocks close to 2.5% yesterday.

yield on the 10-year treasury now above the S&P 500 dividend yield
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It’s important to recognize the reasons why yields are rising. In an email to clients today, Evercore ISI analysts explained that the move is “associated with the higher inflation expectations” and that investors are pricing in “a positive economic skew.”

In other words, as expectations of a strong economic recovery mount—assisted by trillions in fiscal stimulus, loose monetary policy forever and hopes of herd immunity by summer—so do expectations for higher inflation.

This is a topic I covered in a Frank Talk this week. Despite what Federal Reserve Chair Jerome Powell says, prices for a lot of assets are far from “soft” and likely to continue rising as more and more liquidity is pumped into the economy.  

There’s a quote by Stanley Druckenmiller I want to share with you here. On a recent episode of “Talks at GS,” the billionaire investor said that “the longer the Fed tries to keep rates suppressed… the more I win on my commodities.”

Indeed. Interest rates were slashed to near-zero last April, and since then commodities have increased about 45%, as measured by the Bloomberg Commodities Index. But they’re not done yet. I believe we’re just one big infrastructure spending package away from a full-blown commodities supercycle.

With Real Yields at or Below 0%, Is It Time to Buy the Dip in Gold?

Gold participated in the rally, hitting a new high in August, but since then it’s been stuck in a downtrend. The metal, which has the highest weighting in the commodities index at more than 13%, is being clobbered right now by rising yields. Today it fell further to an eight-month low.

gold hit eight month low on february 26, 2021 on rising 10 year treasury yields
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When it comes to trading gold, I think what’s important for investors to pay attention to is not so much nominal yields but real yields. Right now the 10-year bond is trading with a yield of 1.4%, which is the exact same rate that consumer prices rose at in January year-over-year, according to the Bureau of Labor Statistics. So in reality, inflation is eating your lunch even with the yield increase.

I expect gold to catch a bid when consumer prices really start to turn up on additional stimulus. Until then, I see now as an attractive time to buy.

Want to hear more about gold investing? Register for our upcoming webcast (“Gold and Crypto: There’s Room in Your Portfolio for Both”) by clicking here.

Record Low Savings Account Yield

Plus, you’re not gaining anything by leaving your money in the bank, and I mean that literally.

The average yield for a personal savings account fell to a new all-time low in February, according to an index by DepositAccounts. How low? Try 0.49%, which doesn’t come anywhere close to matching inflation, to say nothing of beating it.

Texas electric power grid is an island unto itself
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Low interest rates tell only a part of the story of why this is happening. The other part is that Americans are squirreling away their money like never before, putting pressure on savings account yields. At the end of 2020, U.S. banks held a record $17.8 trillion in deposits, up significantly from $14.5 trillion a year earlier, as people were stuck at home with fresh $1,200 stimulus checks.

Here’s another way to look at it. The chart below shows you personal saving as a percentage of disposable income. You can see that the rate skyrocketed to 33% at the beginning of the pandemic, and though it’s tapered somewhat, it surged again in January thanks to the second round of stimulus.

americans saving their money at record rates
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Granted, not all of this money is sitting in a bank, but a lot of it is, and it’s earning nothing.

Trillions of Dollars Arriving Soon… From Thrifty Households

On the plus side, when everyone gets vaccinated and the pandemic ends, these massive savings will be unleashed on the economy as people get back to their pre-pandemic lives, book vacations, send their kids to college and more. (Colleges in the U.S. saw an unprecedented 13.1% plunge in freshman enrollment in the fall of 2020 compared to the same period a year earlier.)  

Last I checked, $17.8 trillion (the amount held in banks) is a bigger sum than $1.9 trillion (the size of President Joe Biden’s relief bill, which Congress is expected to pass this evening). All of that pent-up capital is just waiting to be put into use, which is highly positive going forward.

share of the population fully vaccinated against COVID 19 as of FEbruary 25, 2021
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We’re well on our way to vaccinating everyone, but there’s still a long road ahead of us. Millions of doses have been administered (I got my second shot this week and feel great), and yet only 6.5% of the U.S. population has been fully vaccinated. Israel is the global leader with 37.8% of its population having gotten the vaccine.

A Knockout Quarter for Thunderbird Entertainment

On a final note, Thunderbird Entertainment reported this week, and it was a knockout quarter. For the quarter ended December 31, revenue came in at $28 million, a jaw-dropping 98% increase year-over-year. The company had 21 programs in various stages of production during the quarter, on networks and platforms as diverse as Netflix, Nickelodeon, Apple and Disney+.

Thunderbird, which trades on the TSX Venture (TBRD.V) and over the counter in the U.S. (THBRF), has been named to the 2021 TSX Venture 50, ranking as one of the top Canadian companies across all sectors.

Jennifer McCarron has done a fabulous job leading the company as CEO and president.

Sadly, I’ll be stepping down from the board of Thunderbird, but it’s for a good reason. The remarkable expansion in U.S. Global ETFs, as well as the rapid growth of HIVE Blockchain Technologies, has meant that I have less and less time to give Thunderbird the attention it deserves. But again, with Jennifer in the driver’s seat, I have no worries about the company’s future. Onward!  

Read my Frank Talk on coming inflation and how investors can prepare for it by clicking here.

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Date Event Survey Actual Prior
Feb-23 Eurozone CPI Core YoY 1.4% 1.4% 1.4%
Feb-23 Conf. Board Consumer Confidence 90.0 91.3 88.9
Feb-24 New Homes Sales 856k 923k 885k
Feb-25 Hong Kong Exports YoY 30.5% 44.0% 11.7%
Feb-25 Durable Goods Orders 1.1% 3.4% 1.2%
Feb-25 Initial Jobless Claims 825k 730k 841k
Feb-25 GDP Annualized QoQ 4.2% 4.1% 4.0%
Feb-28 Caixin China PMI Mfg 51.4 51.5
Mar-1 Germany CPI YoY 1.2% 1.0%
Mar-1 ISM Manufacturing 58.6 58.7
Mar-2 Eurozone CPI Core YoY 1.1% 1.4%
Mar-3 ADP Employment Change 168k 174k
Mar-4 Initial Jobless Claims 798k 730k
Mar-4 Durable Goods Orders 3.4%
Mar-5 Change in Nonfarm Payrolls 145k 49k

Gold Market



  • The best performing precious metal for the week was palladium, but still down 2.51%. Palladium was buoyed by the partially suspended operations at Russia’s Nornickel mine due to flooding.  AngloGold Ashanti boosted its dividend more than fivefold to 48 cents, up from 9 cents in 2019 after profit climbed to $953 million in 2020. The move follows similar dividend increases from rivals Barrick Gold and Newmont.
  • Gold Fields said regulators approved its plan to build a 40-megawatt solar plant at its South Deep mine in South Africa, reports Bloomberg. The new plant will supply 20% of the mine’s electricity needs and help limit operational losses from power outages.
  • African Gold Acquisition Corp, a special purpose acquisition company (SPAC) targeting gold assets in Africa, raised more than $360 million ahead of its New York listing. Bloomberg reports the offer was set to raise $300 million and saw stock sold at $10 a share. Founder and chairman Rob Hersov says potential acquisitions will be in “well-trodden mining countries, so no surprises. And we will likely buy a mining company and possibly add others thereafter.”


  • The worst performing precious metal for the week was platinum, down 6.93%, perhaps on the production expansion plans announced by Anglo American Platinum. Gold had a second weekly drop as 10-year Treasury yields rose to the highest in a year on Tuesday. Spot gold fell 1.9% to $1,770 an ounce on Wednesday and was down as much as 4% for the month. “The broad-based rally on the commodities markets is continuing to bypass gold completely,” Commerzbank AG analyst Carsten Fritsch said in a note.
  • Platinum continued its decline, falling from a six-year high reached earlier this month. Bloomberg reports the metal fell 3.7% on Tuesday to $1,228 an ounce along with other base metals as investors reassess the demand outlook.
  • Goldman Sachs lowered its gold price forecast to $2,000 an ounce, down from $2,300, after a rocky start to the year. Analysts wrote in a note: “We think the strong rotation into risky assets on the back of repricing of global growth has been the main reason behind gold’s underperformance.”


  • De Beers, the world’s largest diamond producer, raised prices by 4% at its second sale of this year, marking a third straight sale with higher prices. Strong holiday sales in the U.S. and positive signs from Chinese New Year have seen buyers rush to replenish their stocks of rough stones, reports Bloomberg. De Beers, an Anglo American Plc business, made massive discounts last year as the pandemic hit demand.
  • Anglo American Platinum Ltd plans to boost production of platinum-group metals 20% to 3.6 million ounces by 2030 through ramping up South African operations. Chief Executive Officer Natascha Viljoen expects prices to remain robust in 2021, even as the platinum market will likely turn to a surplus. “If you consider the momentum in battery electric vehicles and fuel cells, we believe the future lies in a mixed drive train where platinum certainly plays a significant role.”
  • Harmony Gold Mining, South Africa’s top producer, is considering digging further at the Mponeng mine, already the world’s deepest mine at 2.5 miles underground. CEO Peter Steenkamp says ore reserves below the current level are “massive” and the company is looking at ways to find the investment needed to keep extracting. Harmony purchased the legendary and aging Mponeng mine from AngloGold Ashanti last year.


  • Citigroup says gold is losing luster to cryptocurrencies in a new report, which compares net outflows from gold-backed ETFs to the increase in outstanding shares for the Grayscale Bitcoin Trust. “While a few months does not imply a structural trend, it appears rotational flow impacts are favoring cryptocurrencies to the detriment of gold this year,” analyst Aakash Doshi writes. The bank cut its six-to-12-month price target for gold by $150 an ounce to $1,950.
  • Fed Chairman Jerome Powell spoke on Tuesday and signaled the central bank will continue to support the economy and is nowhere close to unwinding its easy policy. “Gold is still in the danger zone since Powell did not deliver a response to the recent surge in yields,” said Edward Moya, a senior market analyst at Oanda Corp. “Treasury yields can probably go a lot higher before the fed will step in, and that could derail gold’s outlook in the short term.” Higher yields hurt gold’s appeal since it does not pay interest.
  • Bloomberg’s Jake Lloyd-Smith says shrinking holdings in gold-backed ETFs are a bad omen for bullion prices as outflows have remained steady since peaking in September. “Bullion faces stiff headwinds this half, with Treasury yields pushing higher amid investor optimism about the pandemic’s endgame and the dollar off its lows.” The analyst thinks investors might be taking the opportunity to exit gold positions during a time of relative strength. Another Bloomberg analyst, Eddie van der Walt, says “it’s always worrying to see gold sell off along with risk assets.” He also points out that bullion is usually among the first to rebound in episodes of acute market volatility, as seen in the chart below from 2008.

gold fell with equities early in the global financial crisis then rallied
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Index Summary

  • The major market indices finished down this week. The Dow Jones Industrial Average lost 1.78%. The S&P 500 Stock Index fell 2.45%, while the Nasdaq Composite fell 4.92%. The Russell 2000 small capitalization index lost 2.90% this week.
  • The Hang Seng Composite lost 7.37% this week; while Taiwan was down 2.37% and the KOSPI fell 3.05%.
  • The 10-year Treasury bond yield rose 6 basis points to 1.405%.

Blockchain and Digital Currencies



  • Of the cryptocurrencies tracked by CoinMarketCap, the best performer for the week was Fantom, rising 206.92%. Coinbase filed to go public via direct listing and finally investors got a glimpse of its financial results. Retail customers accounted for only 36% of trading volume during the fourth quarter of 2020, down from 80% in early 2018. This shows the shift of bulk volume coming from institutional customers. In the fourth quarter of 2019, Coinbase reported $5 billion in retail trading volume compared to $9 billion in institutional volume. These figures blew up to $32 billion in retail volume and $57 billion from institutional clients during fourth quarter of 2020, marking a 540% and 533% increase in each, respectively.
  • Singapore is using blockchain technology to develop a global standard for verifying Covid-19 test results to speed up clearing local and foreign immigration checkpoints.
  • Bitcoin has outperformed the MSCI global equity index this past year, as seen in the chart below, showcasing its strength as an investment vehicle during a time when inflation expectations are on the rise.

bitcoin is up more than fivefold in the past year outperforming stocks

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  • Of the cryptocurrencies tracked by CoinMarketCap, the worst performing for the week was Horizen, down 35.59%. Bitcoin hit its lowest level since February 11 this week when the price dropped to $44,000. Bitcoin is down nearly 20% for the week and if the losses are held through Sunday, the resulting weekly drop would be the biggest since the second week of March 2020, when prices tumbled by 33%. With the meteoric rise in the cryptocurrency, the asset does seem overheated and was due for a correction.
  • The Grayscale Bitcoin Trust (GBTC) plunged 22% this week, outpacing the 17% decline in Bitcoin, evaporating the trust’s massive premium it held and is now trading at 3.8% below the value of its underlying holdings. With Bitcoin declining, there is a supply and demand imbalance for the trust’s shares, resulting in the discounted value that it is trading at.
  • A Serbian man has been charged with embezzling $7 million from U.S. investors through two fraudulent cryptocurrency platforms. He founded “Start Options” and “B2G”, which claimed to be a cryptocurrency mining and trading service and an “ecosystem” for exchange of B2G tokens, respectively. The money invested by users was laundered through a Philippines-based account and digital currency wallet.


  • Analysts at JPMorgan are suggesting that a one percent portfolio allocation in Bitcoin will serve as a hedge against fluctuations in traditional asset classes. This endorsement comes on the back of major investments in Bitcoin by Tesla and MicroStrategy. The analysts do stress that crypto assets should be treated only as investment vehicles and not funding currencies like the USD.
  • Canada’s CI Global Asset Management filed a preliminary prospectus for the world’s first Ethereum exchange-traded fund (ETF). The firm said its proposed “CI Galaxy Ethereum ETF” would be the first ETF to invest directly in ether, the native cryptocurrency of the Ethereum network. The ETF, under the proposed ticker ETHX, will invest in ether with its holdings priced using the Bloomberg Galaxy Ethereum Index.
  • Wyoming has introduced a bill for the implementation of a system for company filings that uses blockchain technology. Under the act, the system would be used by companies for reports, data and other information required by law. The filing system will provide necessary security standards through authenticated digital identities. Wyoming has been working to market itself as a blockchain and crypto-friendly state in a bid to attract companies.   


  • The European Central Bank (ECB) is seeking the power to veto launches of any stablecoins in the eurozone. The ECB believes that it should have the final say ahead of any proposed stablecoin launches, such as the Facebook-backed diem. ECB stated that stablecoin issuers must meet rigorous liquidity requirements on cash reserves similar to money market funds.
  • The Reserve Bank of India (RBI) stated “major concerns” about cryptocurrencies as the Indian government is contemplating an outright ban on the use of such assets, except for an official digital rupee. RBI’s governor acknowledged the benefits of using blockchain technology but remains worried about the risk “private” cryptocurrencies pose to financial stability.
  • The House Financial Services Committee’s subcommittee on National Security, International Development and Monetary Policy held its hearing on domestic terror financing this week. While the focus was not on cryptocurrencies or decentralized tools, the hearing did feature issues of recent concern that such tools are being increasingly used by far-right extremists, especially after they were expelled from more centralized social media and financial technology platforms. The proposed bills to counter these activities are aimed at boosting the powers of the Financial Crimes Enforcement Network (FinCEN), allowing them to freeze the financial assets of any individuals arrested on rebellion or insurrection charges and provide classified information to employees of private financial institutions. 


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By Frank Holmes
CEO and Chief Investment Officer
U.S. Global Investors

February 25, 2021