Real Yield

Yield & Income
Updated Apr 2026 • Has calculator

The inflation-adjusted return on a bond, calculated using the exact Fisher equation.

What is Real Yield?

Real yield is a bond's return after adjusting for the erosion of purchasing power caused by inflation. The exact Fisher equation states that one plus the real yield equals one plus the nominal yield divided by one plus the inflation rate. When inflation is low, the simple approximation (real yield ≈ nominal yield − inflation) is nearly correct, but at higher rates the Fisher equation matters. TIPS (Treasury Inflation-Protected Securities) provide a guaranteed real yield because their principal adjusts with the CPI. For conventional bonds, real yield depends on expected — not realised — inflation, so it is forward-looking.

Formula

Real Yield = [(1 + Nominal) / (1 + Inflation) − 1] × 100

Worked Example

Worked example — TIPS vs. Nominal Treasury Comparison

10-year horizon, October 2024

Step 1  10-year Treasury nominal yield: 4.20%
Step 2  10-year TIPS real yield (quoted): ~1.90% (direct market price)
Step 3  Implied inflation break-even = 4.20% − 1.90% = 2.30%
Step 4  Fisher check: Real Yield = (1.042)/(1.023) − 1
Step 5  = 1.01858 − 1 = 1.86% (vs. approximate 4.20% − 2.30% = 1.90%)

Source: FRED — 10-Year Treasury Inflation-Protected Security Constant Maturity Rate (2024-10-01)

Calculate Real Yield

Nominal yield to maturity of the bond

Expected annual inflation rate over the bond's life

Real Yield

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Not investment advice.

How to Interpret Real Yield

< 0
Negative: Buying power erodes — inflation exceeds nominal yield
0 – 1
0–1%: Near zero real return — common in low-rate environments
1 – 3
1–3%: Moderate real yield — typical for investment-grade bonds
> 3
> 3%: High real yield — elevated rates or deflationary environment
Sources
  1. FRED — 10-Year TIPS Constant Maturity Rate (DFII10)
  2. Fisher, I. — The Theory of Interest, Macmillan, 1930
  3. Investopedia — Real Interest Rate