Chart of the Day: TIPS Derived Inflation Expectations

Update: This new chart shows the yields for 10-year Treasuries and 10-year inflation-indexed Treasuries back to 2004, the bottom chart shows the spread between these two yields.

The chart directly above shows the weekly, bond market-based 10-year TIPS-derived expected inflation, calculated as the difference between 10-year regular, nominal Treasury yields and 10-year Treasury inflation-indexed yields (St. Louis Fed data here for 10-year TIPS and here for regular 10-year Treasuries, see top chart for those yields). After an unusual period in late 2008 resulting in a negative spread when the TIPS 10-year yields were above 4%, and higher than regular Treasury yields of about 2%, the Treasury market seems to have stabilized, and the bond market's 10-year expectation of inflation is back around 2.5%, consistent with the inflationary expectations from 2004-2007.

Comments

[Fighting Yoda:]

"bond market's 10-year expectation of inflation is back around 2.5%" - Yes these are recent averages - but they may be high for the current economy. I would expect TIPS yields/expectations coming down.

Jun 23 01:20 AM

[CLH:]

There is no information that would make anyone think that run-a-way inflation is about to strike. However, the gold bugs will continue to scream "inflation".

Good graphs Perry.

Jun 23 12:54 PM

[TBill:]

You can't print money as fast as this government does and not get inflation at some point down the line... and that line is probably going to be well within 10 years. Bet on TIPS.

Jun 23 11:51 PM