Thursday, June 02, 2011

TIPS Breakeven Rate Falls to Five-Month Low

The "breakeven rate" - the difference between 10-year nominal Treasury yields and 10-year Treasury Inflation Protected Securities (TIPS) yields - is one market-based measure of expected future inflation.  As of yesterday the breakeven rate was 2.20%, down 45 basis points from the recent peak of 2.65% on April 11, and the lowest level since mid-December last year (see chart above).  This downward trend in the breakeven rate suggests that inflationary expectations in the bond market have been moderating in recent months.


At 6/02/2011 7:57 AM, Blogger hal said...

am I wrong to think that maybe the fed is buying all the bonds and distorting the market?

At 6/02/2011 8:03 AM, Blogger morganovich said...


no. you are not wrong.

qe2 is going out with a huge surge.


this tips rate means nothing. if you are actually worried about inflation and have even moderate sophistication, you would never use tips as a hedge because they are pegged to CPI which no longer measures inflation.

At 6/02/2011 10:24 AM, Blogger Buddy R Pacifico said...

The ETF TIP is up over 4% for the year. It is made up of intermediate term TIPS and yields about 2.75%.

At 6/02/2011 10:31 AM, Blogger Methinks said...


I suspect this isn't all the work of QEII. We are benefitting mightely from being the world's reserve currency and from Europe and Japan looking to be in much worse shape. I suspect the willingness to discontinue QEII may be bolstered by this increase in demand. The Fed figures bond investors will do its QEIII for it.

At 6/02/2011 11:46 AM, Blogger Rufus II said...

Oil Products Demand is Down 5% in the last 4 wks compared to same period last yr.

We are in, or right on the verge of, Recession.


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