Wednesday, March 14, 2012

Treasury Spread vs. CPI

Treasury yields may have finally started to rise over the last several days, but compared to CPI they still haven't risen nearly enough.  CPI was up 2.9% y/y as of the most recent reading, but the 10 year treasury bond is only yielding 2.27%.  On average over the past 40 years, the 10 year treasury bond has yielded 2.5% (the red line on the chart) more than trailing CPI, which would imply that today's yield should be 5.4%.

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