After having spent most of August at lower levels, the yield curve has recently shifted up to where it stood at the end of July. Capital market rates have also followed this pattern, but while 30-year Treasuries and municipal bonds have moved within one basis point of their July values, mortgage rates have not kept pace. Utility rates have moved above mortgage rates for the first time since the week ending July 5. Interest rates are usually quoted in nominal terms, but it is sometimes better to look at them from a real, or inflation-adjusted, perspective.
Inflation adjustments come in two shapes.
After a bond has matured, its return can be adjusted ex post for the inflation that actually occurred. Prior to maturity, a bond's yield can be adjusted ex ante for expected inflation. The bottom chart shows one such ex ante adjustment that accounts for the risk of inflation and the correlation between inflation and real interest rates.