A) Given the following data on yields of 10 year Treasury notes and 10 year TIPS, what conclusion do you draw about changes in investors` expectation of inflation rates in the US during the past year? Show your solutions.
10 Year T-note yield 10 Year TIPS Yield
summer 2012: 1.48% -0.70%
now 2.68% 0.49%
B)Explain your answer to part (A), that is explain the difference between the yields on TIPS and the yield regular treasury securities. Include a brief discussion of any factors in addition to inflation expectations that affect the relationship between yields on TIPS and yields o treasuries
C) QE3 has been in place since fall 2012 what do the above data suggest about the change in the required real yield on default risk free long term treasuries during the period QE3 has been in place?
D) Is the change in required real yield in your answer to (C) consistent with an improvement investor expectations for future real growth in the economy with declining real growth expectations?