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(Bloomberg) — The falling U.S. inflation rate is making the world’s biggest bond market more appealing.

Consumer prices probably slid 0.2 percent in April from the year before, based on a Bloomberg survey of economists before the Labor Department reports the figures Friday. If right, it means U.S. 10-year notes have a so-called real yield of 2.44 percent, which would be the highest level in five years.

The U.S. inflation rate has been tumbling as oil fell more than 40 percent in the last 12 months. The Federal Reserve said Wednesday that costs will probably stay near recent low levels in the near term. The inflation rate is seen rising gradually toward the central bank’s 2 percent target over the medium term as the “transitory effects” of energy prices dissipate, the Fed said in the minutes of its latest meeting.

The U.S. is scheduled to sell $13 billion of 10-year Treasury Inflation Protected Securities Thursday.

“We can buy TIPS later,” said Kim Youngsung, head of overseas investment in Seoul at South Korea’s Government Employees Pension Service, which has the equivalent of $13.7 billion in assets. “People are expecting a higher inflation rate in the future, but not in a short period of time.”
The benchmark 10-year yield, without the inflation adjustment, was little changed at 2.24 percent as of 11 a.m. in Tokyo. The price of the 2.125 percent note due in May 2025 was 98 30/32, according to Bloomberg Bond Trader data.

To contact the reporter on this story: Wes Goodman in Singapore at wgoodman@bloomberg.net To contact the editors responsible for this story: Garfield Reynolds at greynolds1@bloomberg.net Tomoko Yamazaki, Naoto Hosoda