Compensation for inflation in these securities (so-called TIPS) has moved sharply lower since last summer. This decline may reflect transitory influences like falling energy costs. A less benign possibility is that investors are lowering their outlook for inflation.
This could be either because their confidence is waning that the Fed will achieve its 2 percent inflation target, or because they see growing risks to the continued strength of the broad economy. Since mid-January, some inflation-compensation measures have shown signs of reversing.