Late last month, we discussed the fact that the strange case of parity had arrived for the yields of the 10-year Treasury and its inflation-indexed counterpart. The conventional 10-year yielded a mere 13 basis points over the 10-year TIPS as of December 26. That was highly unusual, as we pointed out, in part because a conventional Treasury should normally pay a substantial premium over an inflation-indexed bond of the same maturity as compensation for bearing inflation risk.
Of course, the “normal” scenario applies when inflation is generally the path of least resistance. Over the grand course of history, that’s far and away the standard scenario, as fiat currencies have a perfect record of fomenting inflation. But in the shorter term alternative afflictions are possible in the realm of monetary economics, as the last few months remind.