Chart of the Day: TIPS Derived Inflation Expectations

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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.