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Expected inflation declines in Q2

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The difference in interest rates between the 10-year Treasury Note and the 10-year Treasury Inflation-Protection Securities, or TIPS, is one way of measuring the market’s expectation for inflation. TIPS are a type of Treasury security that is indexed to inflation to prevent loss of the real value of the security due to inflation.

The graph shows that the market expects inflation to average 2.24 percent in the next 10 years. Compared to the end of the second quarter 2010, the TIPS spread decreased 21 basis points.

Source: Federal Reserve

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