What Do U.S. TIPS and Treasury Yield Spreads Indicate?

By subtracting the yield of TIPS (Treasury Inflation Protected Securities) of a particular maturity from the yield of an ordinary Treasury note/bond of the same maturity, you obtain the implied annualized inflation over the time to maturity.

TIPS yield Curve (%)

Treasury Yield Curve (%)

Source: www.treasury.gov

As seen above the market is indicating a deflationary picture over the next five years. As of 5th January this expectation was over a 7 year period. How this expectation changes over 2009 will be interesting to monitor.

Disclosure: No positions.

Comments

[granger:]

Good stuff thank you. How accurate has this been in the past?

I guess, it does not matter. The market is always right at any given time. As something is only worth what someone else is willing to pay.

Please keep us posted. This is a valuable tool.

Jan 17 03:44 AM