FXStreet reports that strategists at DBS Bank are not convinced that real rates should be this low.

“Inflation has been more persistent and higher than expected over the past few months. The Fed has generally stuck to its transitory inflation view but we think that risks may be tilted to the upside. In any case, excessively loose monetary policy may not increase output or employment but may worsen price pressures and distort market signals further.” 

“We think that growth risks may be overpriced in US Treasuries. Real yields should rise as market participants recognize that we may be past peak Delta fears and a period of recovery could lie ahead. Moreover, we are not convinced that the Fed would want real yields to stay this low when they shift focus towards inflation and normalization. Assuming long-term US inflation of 2% and neutral real yields of between -0.5 to zero percent, nominal 10Y yields can comfortably hover in the 1.5-2.0% range (similar to levels seen pre-pandemic).”