U.S. Treasury inflation-protected securities now offer real yields 1.2 percentage points above their decade-long average.
U.S. Treasury inflation-protected securities (TIPS) are yielding 2.1% in real terms, surpassing their 10-year average by 1.2 percentage points. This shift reflects a recalibration of inflation expectations rather than trailing inflation data, challenging the narrative of negative real rates earlier this year.
Real yields for 1-year and 10-year maturities are calculated using expected future inflation, not past inflation rates. The Federal Reserve Bank of Cleveland’s model shows nominal Treasury yields outpacing inflation forecasts, driving real yields higher. This contrasts with short-term rates like the fed-funds rate, which remain influenced by current inflation trends.
The divergence highlights a potential opportunity for investors seeking inflation-adjusted returns, as TIPS yields now exceed historical averages without requiring further nominal rate hikes.