Does TIPS’ Inflation Break-Even Rate Accurately Predict Future Inflation?

Summary

  • The break-even rate details investors’ inflation expectations. It is not a predictor of future inflation.
  • The trend since 1997 seems to indicate that investors underestimate future inflation. But TIPS have underperformed recently.
  • Rising real yields and still-low inflation break-evens mean that TIPS are getting more attractive as an investment in 2017.

In the 11 years of TIPS auctions with completed 10-year maturities, inflation was underestimated in seven of those years, and overestimated in four of those years.

Read my full analysis on SeekingAlpha.com

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