In Real Squeeze, -1% Guaranteed Real Real Return! Yummy??, and Historical Sources of Bond Returns, I offer some historical perspective on the only sources of bond returns: inflation, real returns, and credit. Assuming no credit risk in US Treasuries (probably not a good assumption given this Bloomberg quote on CDS on US Treasuries), the formula is fixed, and all inputs except inflation are provided ex-ante. While bond prices can fluctuate wildly (Extreme Bond Returns), the experience over the life of a bond and a bond index is predetermined by the yield to maturity. Unfortunately, that guaranteed experience in inflation or deflation is not so pleasant.

While everyone should know R, I understand that some readers would prefer an easier route. FRED as usual comes to the rescue. Unfortunately though, labeling is not allowed. The codes can be translated as follows:

- DBAA = total return on BAA
- DBAA – (DGS10 – DFII10) = credit return
- DGS10 – DFII10 = inflation (expected)
- DGS10 = real return

In the spirit of continuous improvement, here is the chart now using lattice and latticeExtra.

R code now in GIST:

*Related*

To

**leave a comment** for the author, please follow the link and comment on their blog:

** Timely Portfolio**.

R-bloggers.com offers

**daily e-mail updates** about

R news and

tutorials on topics such as:

Data science,

Big Data, R jobs, visualization (

ggplot2,

Boxplots,

maps,

animation), programming (

RStudio,

Sweave,

LaTeX,

SQL,

Eclipse,

git,

hadoop,

Web Scraping) statistics (

regression,

PCA,

time series,

trading) and more...

If you got this far, why not

__subscribe for updates__ from the site? Choose your flavor:

e-mail,

twitter,

RSS, or

facebook...

**Tags:** bonds, fed, lattice, R