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Two Bloomberg Measures of the US 5Y5Y Inflation Expectation

Article Quant Q&A · Author: nwly
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Summary

The answer explains why two Bloomberg tickers for the US five-year-forward, five-year inflation expectation can differ. One is derived from zero-coupon inflation swap quotes: it approximates the forward rate by doubling the ten-year swap quote and subtracting the five-year quote. The answer describes this as a simplification that works reasonably well for this particular tenor, not as a general construction.

The other measure comes from a curve built from US Treasury inflation-indexed securities. The response says that FRED uses Treasury securities and adjusts the measure relative to nominal swaps, while a related Bloomberg view compares nominal and inflation-linked bonds. Thus the two series use different underlying instruments and construction methods. The answer offers a practical way to distinguish the measures but does not provide a full derivation, a numerical comparison, or enough detail to reproduce the FRED adjustment; the exact choice depends on which market convention or data source a user intends to match.

Key ideas

  • One Bloomberg 5Y5Y measure approximates the forward rate using five-year and ten-year zero-coupon inflation swap quotes.
  • That swap-based calculation is described as a useful simplification for the 5Y5Y tenor.
  • The other Bloomberg measure is based on a curve of Treasury inflation-indexed securities.
  • FRED uses Treasury securities and adjusts its measure relative to nominal swaps.
  • The two series should not be treated as interchangeable because they use different instruments and constructions.

Tags

Fixed incomeUS marketsStatistics
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# Which is the "correct" 5Y5Y Inflation Expectation on Bloomberg, and what are the differences?


# Which is the "correct" 5Y5Y Inflation Expectation on Bloomberg, and what are the differences?












When the market talks about 5Y5Y expectation, is it referring to `FWISUS55 Index`, or `G0169 5Y5Y BLC2 Curncy` on Bloomberg? I suspect it's the first one (e.g. comparing to FRED), but can't explain why, or what's the difference between the two.

## Answer by AKdemy (score 3, accepted)

https://quant.stackexchange.com/a/63579

I think the help desk would have been able to help. According to the `DES` page, `FWISUS55 Index` is simply `2*USSWIT10 Curncy - USSWIT5 Curncy`. These are zero coupon inflation swap quotes. This is a gross oversimplification. In terms of 5y5y only it works quite well (see the last link below).

Seems `SWIL` (where these inflation swaps are used) is not supported in `FWCM`, where the second ticker comes from. So I guess in terms of inflation swaps, that is as good as you will get.

The second ticker is the `US Treasury Inflation Indexed Curve` - you can load it on GC `YCGT0169 Index GC` to see the constituents `Inflation indexed treasury bonds` on the Table.

FRED is using the latter (treasury securities). However, they transform this relative to nominal swaps. Somewhat similar data can be found on `ILBE` on BBG. You can select `Nominal Bond v Inflation Bond`. More details on what FRED is doing can be found here.

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.