Earlier this month, we observed that the inflation-indexed Treasury market was priced for the assumption that inflation was a fading threat. But since then, the TIPS market appears to be having second thoughts.
On December 4, a 10-year TIPS yielded a real (inflation-adjusted) yield of 2.11%, according to U.S. Treasury data. As of last night’s close, the 10-year TIPS changed hands at 2.50%–the highest since last October.
As our chart below shows, the 10-year TIPS yield has jumped dramatically in recent weeks. Is this a good time to jump in?
Clearly, the bond market generally has become more anxious about inflation’s threat in recent weeks. The nominal 10-year Treasury now yields nearly 4.90%, the highest since last August.