The yield on 5-year US Treasury Inflation Protected Securities (TIPS) has tumbled to a record low of minus 0.5%. It could fall even further if the yield on 5-year conventional Treasuries continues to decline, or if inflation expectations climb. Both of these potential outcomes appear consistent with the objectives of many participants on the FOMC. But neither seems particularly likely. Although we did not expect real yields to fall as far as they have, we continue to think there are valid reasons for expecting them to rebound.
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