And if that real rate of return falls, it is logical that firms will only be willing to borrow at lower real rates. This is reflected in lower long-term real yields. The second factor is a global imbalance of saving and investment, which has led real yields to fall even relative to growth prospects.
On the saving side, a “global saving glut”, produced among other things by ageing populations, has bid up the price of safe assets at a time when the supply of those assets has been shrinking, thereby compressing real yields. Factors such as a decline in the relative price of capital goods have also led to a fall in desired investment.