Chart of the Day:TIPS Derived Inflation Expectation

Update: Both charts above and the comments below have been updated, based on using 10-year constant maturity yields for both Treasury series (thanks to Michael Pond for suggesting this).

The top chart shows the weekly, bond market-based 10-year TIPS-derived expected inflation back to 2003, calculated as the difference between 10-year regular, nominal Treasury yields and 10-year Treasury inflation-indexed yields, both on a constant maturity basis (St. Louis Fed data here for 10-year TIPS and here for regular 10-year Treasuries; see the bottom chart for those yields separately.

After an unusual period in late 2008 resulting in a narrowing spread when the TIPS 10-year yields were unusually high and approaching 3%, and regular Treasury yields were unusually low and approaching 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 2003-2007.

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Chart of the Day:TIPS Derived Inflation Expectation

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