Short-Dated TIPS Yields, Seasonality, and Inflation Expectations
Summary
The document discusses sources for a fitted one-year real yield series for Treasury Inflation-Protected Securities (TIPS), sampled monthly, and notes that similar data may be available through bank research portals. Its main focus is a caveat: quoted real yields on short-dated TIPS can be distorted by illiquidity, seasonal patterns in inflation, the deflation floor, and other instrument-specific effects. The author says these effects can be very large and may make inflation breakevens calculated from short-dated TIPS unreliable.
As an alternative for estimating near-term inflation expectations, the response recommends survey-based measures. It notes that some researchers use survey expectations to fit the short end of a TIPS yield curve rather than relying directly on observed TIPS yields. The discussion refers to a fitted series and charts, but the document provides no downloadable data or chart details here, and its recommendations are the author’s judgment rather than a comparative validation of forecasting accuracy.
Key ideas
- A fitted monthly series can provide an estimate of the one-year real TIPS yield.
- Short-maturity TIPS yields may be affected by illiquidity, seasonality, and the deflation floor.
- These effects can make front-end breakeven inflation estimates unreliable.
- Survey-based inflation expectations are presented as an alternative for the short end of the yield curve.
- Some researchers use survey measures when fitting short-dated TIPS yields.
Tags
Full text
# Where to Get the Yield of One Year Constant Duration TIPS ( inflation protected bonds) # Where to Get the Yield of One Year Constant Duration TIPS ( inflation protected bonds) Do you know where can I get the Yield of One Year Constant Duration TIPS ( inflation protected bonds). I found the yield of 5 year, but never could get the data for one year. Many thanks! ## Answer by Helin (score 3) https://quant.stackexchange.com/a/55804 I saved a file, which has fitted 1-year real yield sampled at monthly frequency. It's my own calculation; feel free to use it. The best alternative sources for this kind of data tend to be bank research portals (e.g., JPMorgan's research website has similar data). I thought I'd provide some unsolicited comments on why this series, IMO, is not particularly useful. Illiquidity aside, the quoted real yields of short-dated TIPS are heavily distorted. The chart below shows some rough estimates for the impact of seasonality across the TIPS yield curve (in basis points, as of 1/12/2015, chosen purely because I have the chart readily available...) The distortion can be hundreds of basis points: The next chart provides a time series perspective, showing the unadjusted 1-year real yield (taken from the file above) and a variant that has been adjusted for seasonality and deflation floor: These distortions (and other technicalities) make the calculated breakeven inflation all but useless. For more color, I recommend Barclays's excellent research paper "Valuing front-end linkers." My recommendation is to use survey-based inflation expectations instead. The chart below compares TIPS-implied 1-year BEI and survey-based 1-year inflation expectations. It is worth noting that some researchers use survey-based measures to fit the front end of their TIPS yield curve, instead of actual TIPS.
Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.