Macro Analyst Sees Negative 5 to 10 Percent Real Interest Rates on the Horizon

The United States has experienced a collapse in real rates in recent months, meaning that inflation is greater than the nominal interest rate.  The yield on 10-year Treasury Inflation-Protected Security (TIPS) bonds is negative 1.04 and has hovered around negative one […]

article-image
share
  • Luke Gromen points out a bubble in sovereign debt which could lead to negative 5 to negative 10 percent real rates
  • Negative real interest rates would have a positive effect on gold, bitcoin, and other hard assets

The United States has experienced a collapse in real rates in recent months, meaning that inflation is greater than the nominal interest rate. 

The yield on 10-year Treasury Inflation-Protected Security (TIPS) bonds is negative 1.04 and has hovered around negative one percent since August. 

“We’re experiencing the first global sovereign debt bubble in 100 years,” said Luke Gromen, founder and president of Forest for the Trees LLC. “When a sovereign debt bubble bursts, governments only go bankrupt if they decide to not print money, and, historically, the number of governments with a fiat currency that have decided to basically shrink themselves to avoid printing fiat currency, it’s a very short list. They almost always print.”

Printing more money means inflation, and, eventually interest rates will respond. As inflation rates rise, bond holders are likely to sell to avoid losing money. 

“The problem is that interest rates rising in the midst a sovereign debt bubble makes the government’s fiscal position worse, because now they have to pay more interest on their really big debt pile, and that puts them in a worse position,” said Gromen, “which means they have to print more to pay off interest, which sends interest rates higher, and it turns into a debt death spiral.”

Negative real rates help to explain gold’s recent rally from the March 2020 lows, as investors move into stores of value assets like real estate, precious metals and bitcoin as a hedge against riskier assets. 

“There are just a lot of symptoms of this happening, and I think there would appear to be a hierarchy of assets benefiting from this,” said Gromen. “I think at this point, Bitcoin has been on top in terms of performance, but I think it’s all being driven by the same dynamic, which is this bursting global sovereign debt bubble.”

The general consensus seems to be, Gromen said, that real rates bottomed out around negative 1.1 percent in August, but he sees them dipping lower. 

“I think at a very minimum, before this is all said and done, we’re likely to see negative real rates in the U.S. of negative five percent to negative ten percent, and I think they could be lower than that, potentially,” said Gromen. 

Gromen emphasized that while there is no formula to predict the exact rate, there is history. He points to post-World War II America, where real rates dropped to negative 14 percent. 

“Directionally, I look at it and say ‘we’re in a worse position than we were during World War II, and we saw negative 14 percent then,’” said Gromen. “Is it really possible that the bottom was negative 1.1 percent? I suppose it’s possible, but it strikes me as highly unlikely.”

Tags

Decoding crypto and the markets. Daily, with Byron Gilliam.

Upcoming Events

Old Billingsgate

Mon - Wed, October 13 - 15, 2025

Blockworks’ Digital Asset Summit (DAS) will feature conversations between the builders, allocators, and legislators who will shape the trajectory of the digital asset ecosystem in the US and abroad.

recent research

Unlocked by Template (11).png

Research

Union’s technical design brings measured improvements to crosschain interoperability. By combining a consensus-verified hub with novel constructs like state lenses and ZK proofs for client updates, Union achieves an interoperability protocol that is highly performant, trust-minimized, and scalable.

article-image

The Google Cloud Web3 lead outlined a new Layer 1 with CME piloting tokenization on its rails

by Blockworks /
article-image

Camp is looking to onboard licensors and creators to monetize their content for AI agents

article-image

The US regulator will use Nasdaq’s system to detect manipulation across derivatives and prediction markets

by Blockworks /
article-image

SOL and HYPE have rebounded, dYdX course corrects (again)

article-image

Over 100 crypto firms and advocates urge Congress to shield open-source builders and non-custodial providers

by Blockworks /
article-image

The probabilities app is finding mainstream success