AUG · ISSUE 34 · August 15, 2026
CONCEPTThe interest that really counts
Real rates versus nominal: why the number you see on a bond is not the one you keep.
NOMINAL
5%
what the bond says
INFLATION
3%
what it subtracts
REAL
2%
what you earn
THE IDEA
Real = Nominal - Inflation
the subtraction that changes everything
The nominal rate is the yield a bond advertises. The real rate is what is left after inflation. If a bond pays 5% and inflation is 3%, your purchasing power grows only 2%.
AUG · ISSUE 34
EXAMPLEFive minus three is two
2%
5% nominal - 3% inflation
That 2% is what your money truly grows. If inflation were 6%, you would be losing 1%.
Many people think a 5% bond pays them 5%. With high inflation, that yield can be a loss in disguise.
- INFLATION
- — The pace at which prices rise and your purchasing power falls.
- NEGATIVE REAL YIELD
- — When inflation beats the rate: you lose by holding the bond.
AUG · ISSUE 34
THE RULEThe 5% that loses you money
“A bond paying 5% with inflation at 6% loses you money, even though the number looks positive.”
Comparing two investments by their nominal rate is comparing apples to oranges when inflation differs in each case.
- FIXED INCOME
- — Bonds and other assets that pay an agreed interest.
- NOMINAL RATE
- — The interest written on the bond, unadjusted for inflation.
AUG · ISSUE 34
ILLUSTRATIONWhen the real rate turns positive
Illustrative example: when inflation falls faster than rates, the real rate rises and crosses into positive territory.
The stretch below zero is where a saver loses purchasing power without noticing, which is why markets watch that crossing.
- REAL RATE
- — Nominal rate minus inflation, the yield you actually earn.
- POSITIVE TERRITORY
- — When the real rate is above zero: your money gains purchasing power.
AUG · ISSUE 34
WHY IT MATTERSFour things the real rate decides
Your bond
Two bonds at the same 5% yield differently if inflation differs. Only the real rate compares them properly.
Gold
Gold pays no interest. When the real rate falls, its opportunity cost drops and it tends to shine.
Long bonds
The 30-year bond is very sensitive: if real rates rise, its price suffers more than short bonds.
The Federal Reserve
The central bank tries to move the real rate to cool or stimulate; it is its underlying lever.
Behind moves that look chaotic (gold, bonds, the dollar) there is often a single variable: real rates.
- OPPORTUNITY COST
- — What you give up earning elsewhere by holding this asset.
- SENSITIVITY
- — How much a bond's price moves when rates change.
AUG · ISSUE 34
BREAKDOWNOf every 5% nominal, how much is yours?
Example with inflation at 3%: more than half of your nominal yield goes to inflation.
Seeing the nominal yield as a pie that inflation splits helps you not be fooled by high numbers.
- NOMINAL YIELD
- — The total interest before subtracting inflation.
- EROSION
- — The silent loss of purchasing power to inflation.
AUG · ISSUE 34
WHERE TO SEE ITThe assets where the real rate lives
| 10Y BOND | ~4.6% | → nominal | Yield before inflation (illustrative) |
| TIPS | ~2.0% | ▲ real | Inflation-linked bond: gives you the real rate (illustrative) |
| INFLATION | ~2.6% | → CPI | What you subtract from the nominal (illustrative) |
| GOLD | no coupon | → haven | Shines when the real rate falls (illustrative) |
TIPS isolate the real rate; comparing their yield to a plain bond tells you what inflation the market is pricing.
- TIPS
- — Treasury bond whose principal adjusts with inflation.
- COUPON
- — The periodic interest a bond pays. Gold has none.
AUG · ISSUE 34
FOLLOW USThe number you see is not what you earn
Before comparing yields, subtract inflation.
Every time you hear a rate, ask what the real one is. That is the half of the story almost no one looks at.
Daily briefing · @ronfy_official
Daily briefing · Mon-Fri 16:00 ET
- REAL RATE
- — Nominal minus inflation. The yield that truly matters.
- TIPS
- — Inflation-linked bond, the direct way to collect the real rate.