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The chart below plots the yield to maturity for the 10-year nominal Treasury bond (solidline) and 10-year TIPS (dashed line) over the January 2003 to

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The chart below plots the yield to maturity for the 10-year nominal Treasury bond (solidline) and 10-year TIPS (dashed line) over the January 2003 to August 2013 period. Explain whythe nominal bond always has a higher yield than the TIPS. Does the yield spread between thenominal bond and the TIPS tell us anything about future inflation rates? Discuss. (5 points)

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