Which rate is the real rate and which is the nominal? And why?
S&P = nominal?
Treasury = real?
No,
S&P = real
treasury = nominal
Because equity accounts for inflation and real growth. Treasury doesn’t.
Thnx!
Why S&P is real? It is not really clear for me.
Equity account for inflation and real growth therefore S&P return is nominal return.
Treasury is priced according to future inflation expectation and it is nominal as well.
Treasuries do not adjust to changing inflation rate. You would buy TIPs for that, aka real rate bonds.
S&P is real because earnings levels are not fixed and will increase with inflation.
If there is an inflation market value of Assets in the balance sheet and therefore market value of Equity (S&P) if Liability remain at book value will increase in some way.