“Realized inflation has actually been coming down over the last 12 to 15 months,” said Donald Ellenberger, who oversees about $10 billion as co-head of government and mortgage-backed securities at Federated Investors in Pittsburgh. Ellenberger said in a March 28 phone interview he sold short-term TIPS.

A Fed index measuring inflation expectations, the five- year, five-year forward break-even rate, fell to 2.69 percent last week from a 17-month high of 2.89 percent in January.

That’s the lowest level since before the central bank said in December it would buy $45 billion of Treasuries a month on top of the $40 billion of mortgages it was already purchasing.

Yields on TIPS have fallen below zero percent as interest rates for non-indexed debt dropped to historic lows. Investors are willing to accept negative yields because the face value rises along with the consumer price index.

Negative Yields

Current five-year TIPS yields rose nine basis points, or 0.09 percentage point, to negative 1.65 percent. The price of the 0.125 percent security fell 13/32, or $4.06 per $1,000 face amount, to 107 12/32. The Treasury will auction $18 billion of five-year TIPS on April 18.

TIPS “have cheapened for a reason as weaker economic data has led to somewhat of a sell-off in break-evens,” Michael Pond, head of global inflation-linked research in New York at Barclays Plc, one of 21 primary dealers that trade with the Fed, said in an April 10 telephone interview. “And that could continue given the economic data and performance of commodities.”

Yields on five-year Treasuries not indexed to inflation were little changed last week at 0.69 percent, according to Bloomberg Bond Trader data. Treasury 10-year note yields declined less than one basis point, or 0.01 percentage point, to 1.72 percent as of 8:44 a.m. in New York.

U.S. Forecast

The International Monetary Fund cut its forecast for U.S. economic growth last week as automatic budget cuts slow the expansion, according to a draft of the Washington-based lender’s World Economic Outlook. Gross domestic product will expand 1.7 percent this year, down from a previous forecast of 2 percent, according to the report obtained by Bloomberg News. The draft may be revised before its scheduled April 16 release.