Inflation Expectations At Five-year Low
This gap represents the rate of inflation that investors in the $515 billion market expect over the life of the debt. TIPS pay investors a coupon plus the rate of inflation as measured by the government's consumer price index, effectively eliminating any erosion in the return on fixed-income securities caused by price inflation.
The gap between regular 10-year Treasurys and TIPS yields has fallen to 1.93%, a level not seen since 2003. The drop in commodity prices, chiefly oil, is being interpreted as easing pressure on virtually all other kinds of prices.
HT: Clover Aguayo