The tea leaves of the world’s biggest bond market are producing a much-more foreboding reading than those of U.S. stock prices.

America’s equity indexes are holding well above their pandemic-induced 2020 lows, yet the Treasury market increasingly is foreshadowing doubt over the pace of the economic rebound as new virus cases slow re-opening plans in many states. Ten-year real yields, considered a more-pure read on growth since they strip out inflation, have dropped for the past six weeks and hover at about -0.85%.

The Treasury market is charting its path based on the resurgent coronavirus and expectations that the Federal Reserve will push even harder on the monetary gas pedal, allowing inflation to run above its 2% target in the process. That has real rates, as measured by the yield on 10-year Treasury Inflation-Protected Securities, on course to potentially slide to as low -2% in the years ahead, according to Stephen Jen of Eurizon SLJ Capital.

“The fall in real yields speaks to the challenged growth environment going forward,” said Greg Peters, head of multi-sector and strategy at PGIM Fixed Income. “What the bond market is telling you is that growth will be sub-par for quite some time.”

This week will provide a litmus test on just how bullish investors are on inflation’s upward trajectory when the government sells $14 billion in 10-year TIPS, as the inflation-linked debt is dubbed, on Thursday. There won’t be fresh insights on Fed policy because officials are in a blackout period for public speeches ahead of their July 28-29 meeting. Traders will be keenly watching the latest read on unemployment claims and a first read of U.S. manufacturing in July.

Nominal Treasury yields have held fairly steady with the 10-year maturity swinging between 0.57% and 0.76% over the past month. Meanwhile, a fixed-income measure of inflation expectations, dubbed the breakeven rate, has risen to 1.44% from as low as 0.47% in March. Gold, the shiny metal favored as an inflation hedge, has also surged this year.

“The decline in real yields and the bid for safe-haven assets, such as gold, is another troubling signal of uncertainties ahead,” Subadra Rajappa, head of U.S. rates strategy at Societe Generale wrote in a note.

What to Watch

• Fed officials are in a blackout period ahead of the July 28-29 meeting.
• Here’s the economic calendar
  • July 21: Chicago Fed activity index
  • July 22: MBA mortgage applications; FHFA house price index; Existing home sales
  • July 23: Jobless claims; Bloomberg economic expectations and consumer comfort; Leading index; Kansas City Fed manufacturing activity
  • July 24: Markit U.S. services PMI; new home sales
• The auction calendar
  • July 20: $45 billion 13-week bills; $51 billion 26-week bills
  • July 21: $30 billion 42-week cash management bills; $30 billion 119-day CMB; $20 billion 273-day CMB
  • July 22: $17 billion 20-year bonds reopening
  • July 23: 4-, 8-week bills; $14 billion 10-year TIPS