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Tips from TIPS: Update and Discussions
The spread between the yield on a nominal Treasury security and that on a Treasury inflation protected security (TIPS) of comparable maturities--usually called the "breakeven inflation rate" or "inflation compensation"--has been often used as a real-time proxy for market participants' inflation expectations. However, policymakers and market participants are also cognizant that this spread is an imperfect measure, as it contains other components that can drive a wedge between inflation compensation and market participants' true inflation expectations. In a recently published paper (D'Amico, Kim, and Wei (DKW), ... (full story)