Bond Market's Inflation Prediction Falls Below 2%

Includes: TIP, TLH
by: Mark J. Perry

The chart above shows the bond market's inflation prediction since the beginning of the year, calculated as the weekly difference between the 10-year regular, nominal Treasury yield (data here) and the 10-year Treasury inflation-indexed yield (a measure of the real interest rate, data here), both on a constant maturity basis. From a yearly high of 2.62% in mid-April, the proxy for bond investors' inflation outlook has been trending downward, and reached a year-to-date low of 1.82% in late September. After rising above 2% for three weeks for the last week of October and the first two weeks of November, the inflation expectation spread has been below 2% for the last two weeks.

Notice that the downward trend in the bond market's inflation prediction over the year has been very similar to the downward pattern in the actual monthly rates of inflation from the BPP @ MIT, see post below (link here) and graph below.