Inflation compensation for the period five to ten years ahead, derived from spreads between nominal and inflation-indexed Treasury securities, has remained well anchored. Restrained inflation expectations have also been an important reason that long-term interest rates have remained relatively low.
At roughly 4-1/2 percent at year-end, yields on ten-year nominal Treasury issues increased only slightly on balance over 2005 even as short-term rates rose 2 percentage points.