From Calculating Expected Inflation using the TIPS Spread
Expected Inflation or TIPS Spread is the difference between nominal US Treasury bond rates and rates on US Treasury Inflation-Protected Securities. This spread is an indicator of expected inflation. The current rates are listed in table at the end of this article.
- Using 10 year rates, expected inflation is 1.99%
- Using 30 year rates, expected inflation is 2.21%
- US Treasury Rates at a Glance
Supply and demand issues can distort the TIPS Spread so buyers need to beware. For example, the Federal Reserve has been busy buying US Treasuries to help banks. The TIPS spread could widen when the Fed stops buying treasuries or goes into tightening mode.
U.S. Treasury Rates - 10/15/09
|TIPS - 10/15/09|
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Must Read: Beware of Annuities