Bond market is volatile these days – US 10-years treasury yield just swung from under 4% to near 4.5% in a few days.
The inflation protected 10-year TIPS yield also rose from under 1.8% to over 2.2% in a few days. (this is like a 20% move? even higher than the 10% move in 10-year treasury).
I shall discuss 10-year TIPS more below.
It was ~5% in early 2000s. Then, it went down a bit before GFC. Between GFC and 2021, it was sub-2%. Now it’s back to pre-GFC level.
✅ Summary
| Period | 10Y TIPS Real Yield | Key Characteristics |
|---|---|---|
| Pre-2008 | 2%–3%+ | Higher real rates, less Fed intervention |
| 2009–2021 | <2%, often negative | QE, ZIRP, low inflation, high demand for safe assets |
| Post-2022 | >2% again | Inflation shock, Fed tightening, rate normalization |
Source: ChatGPT
And in terms of why 10-year TIPS was low from 2009 to 2021, it seems that Fed QE is a big factor.
📆 Timeline of Fed TIPS Purchases
| Period | TIPS Purchase Status | Notes |
|---|---|---|
| 2010 (QE2) | ✅ Began buying TIPS | First inclusion of TIPS in QE |
| 2010–2021 | ✅ Continued buying in QE3, COVID QE | Purchases scaled with overall Treasury buying |
| Nov 2021 | 🔻 Began tapering all Treasury purchases | Including TIPS |
| Mar 2022 | ❌ Fully stopped purchasing TIPS (and other Treasuries) | QE ended completely |
| Jun 2022 onward | 🔄 Began Quantitative Tightening (QT) | Letting TIPS holdings roll off gradually |
Source: ChatGPT
As to whether yield will go up from here? The equilibrium real interest rates (r*) depend on several things:
1/ real productivity growth. AI is helping? So can push r* higher.
2/ global saving. Can be lower in China, thus less supply of capital. So can push r* higher.
3/ risk appetite. Going down sharply. So should push r* lower.
4/ DOGE. Lower gov spending should push r* lower.
5/ Reshoring. Need to borrow more. So can push r* higher.
Unfortunately, these factors are all moving..