TIPS Derived Expected Inflation

The chart 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). After a 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.

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