Discussion Paper

A Window into Bond Investors’ Uncertainty About R‑Star

Abstract: Monetary policymakers closely monitor the term structure of sovereign bond yields to uncover market participants’ beliefs about the future monetary policy stance, inflation, and activity. A particular object of interest is the natural real rate of return, or “r-star,” which acts as a guide for monetary policy decisions. Numerous papers have questioned how much information investors possess, and how precisely they know r-star. In this post based on a recent Staff Report, we explore what the term structure of interest rates can teach us about r-star and its perception by investors.

JEL Classification: E58; E43;

https://doi.org/10.59576/lse.20260804

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2026-08-04

Number: 2026804