The time cost of capital: real yields vs. long-term investment

When real interest rates are low, especially negative, capital becomes tolerant of delay, encouraging long-term investments in structures like power infrastructure and oil & gas development. But, as real yields rise, as seen in the post-2022 tightening cycle, time itself becomes an economic cost again.

Real yield spikes tend to coincide with retrenchment in long-duration capex. But the correlation isn’t perfect. Periods like 2010–2015 saw extremely low or negative real rates, yet investment remained sluggish, given regulatory uncertainty, post-crisis deleveraging and weak aggregate demand.

Hence, low rates don’t always mean “easy” money, and are necessary but not sufficient for long-term investment to flourish.