<If the long end of the curve isn’t moving much then does that mean the expectations for inflation are (relatively) short term?
For example, looking at the 1964-69 period, inflation went from 1% up to 6%.>
The bond market in 1964-69 was free and not controlled by the Federal Reserve as it is now. At that time, the bond market truly reflected inflation expectations.
Currently, the Fed buys 25% of TIPS, which are often used to calculate “inflation expectations.” (Treasury minus TIPS = inflation expectation). The market for TIPS is much smaller than the market for Treasuries so the Fed can manipulate the TIPS price to get the result they want.
https://fred.stlouisfed.org/series/DFII10
When Fed Chair Powell said that he wanted the Fed to let inflation rise above its 2% target temporarily, I said to myself, “Watch out what you wish for. Inflation isn’t easily tamed once it gets going.”
https://home.treasury.gov/resource-center/data-chart-center/…
As of yesterday, the 10YT real yield was the same as the 10Y TIPS yield = -0.50%. If they got too far apart they could be arbitraged. I’m sure that the Fed is controlling this. They wouldn’t want the markets to see that long-term inflation expectations were rising if that were the case.
Anyone who thinks that inflation will rise long-term should buy TIPS. But the better choice is I-Bonds since the principal of TIPS will decline if interest rates rise and the bond is traded before maturity.
Wendy