The Big Picture: Inflation expectations in the 10 yr TIPS (U.S. Treasury Inflation Protected Securities) today are spiking by 10 bps to 2.36%, to the highest since May 3rd and it’s the biggest one day move since September.
Looking at the 5 yr TIPS has the same message, rising 8 bps to 1.97%, the highest since also early May. Since Aug 26th, the implied inflation rate in the 10 yr TIPS is up by 79 bps while the conventional 10 yr is higher by 100 bps. Thus, the rise in interest rates has been a mix of expectations of better growth but certainly also of higher inflation.
Although the inlfation expectations reflected by TIPS are up significantly, the implied inflation rates (nearly 2% over five years and 2.4% over ten years) are quite mild on a historical basis. Read the source…..