The U.S. Treasury issues some bonds as Treasury Inflation Indexed Securities, or TIIS, which are bonds adjusted for inflation: hence the yields can be roughly interpreted as real interest rates. Go to the St. Louis Federal Reserve FRED database and find the data on the following TIIS bonds to compare these yields with their nominal counterparts for the most recent available data, and answer the questions below.

• 5 year U.S. treasury (DGS5) and 5 year TIIS (DFII5)

• 7 year U.S. treasury (DGS7) and 7 year TIIS (DFII7)

• 10 year U.S. treasury (DGS10) and 10 year TIIS (DFII10)

• 20 year U.S. treasury (DGS20) and 20 year TIIS (DFII20)

• 30 year U.S. treasury (DGS30) and 30 year TIIS (DFII30)

a) Following the Great Recession of 2007–2009, the 5, 7, 10, and even the 20 year TIIS yields became negative for a period of time. How is this possible?

b) For each of the bond pairs above, calculate the difference between the bonds (DGS5 – DFII5, etc.). What does this difference represent?

c) Based on your answer to part (b) above, are there significant variations in the differences in the bond pairs? Interpret the magnitude of the variation in differences among the pairs.