TIPS Yielding Higher Than Other Bonds
It is a mystery why the yield spread is so low. This is a clear example of markets behaving irrationally. That people who invest in the U.S. bond market are irrational is not really new either. As pointed out in this speech by William Dulley, it has historically been the case that bond investors have underestimated future inflation. He points to studies that show that the government's cost for TIPS has been much higher than its cost for other bonds. The mirror image of the higher cost for the government is that TIPS have given investors much higher return than other bonds.
Dulley however tries to dismiss the notion that TIPS will provide higher return for investors in the future too by saying that most economists share bond investors low inflation forecasts. But since those economists didn't predict the high inflation numbers that we've seen in recent years, why should we trust them now? All this shows is how incompetent most economists are as forecasters
Another implication of this is that the TIPS-regular bond yield spread is not a reliable guide of inflationary pressures.