US: 10-year TIPS yield drops to record low to weigh on USD

The yield on the 10-year US Treasury-Inflation Protected Securities (TIPS) slumped to a record low of -0.907% on Thursday, suggesting that investors are pricing higher inflation expectations amid unprecedented stimulus in the economy.

Meanwhile, the yield on the benchmark 10-year US Treasury bond was last seen down 3.35% at 0.581%.

Furthermore, the sharp drop in TIPS yields shows that markets are expecting the Federal Reserve to extend its dovish stance as data start to point out to a stall in the recovery. 

Market reaction

This development seems to be the primary driver behind the broad-based USD weakness on Thursday. The US Dollar Index (DXY), which formed a strong inverse correlation with the US stocks since the beginning of the coronavirus crisis, is falling alongside Wall Street's main indexes. 

As of writing, the DXY was down 0.2% on the day at 94.76 while the S&P 500 Index (SPX) and the Dow Jones Industrial Average (DJIA) were both losing 1.4%.