"For longer-term investors in TIPS, a 2% base yield (or higher) was the norm for many years through the last decade. Right now that yield is about 0.72%, well below the norm."
I see two ways real yields will rise from here.
1. Our debt becomes so large that no sane person could possibly think we would repay it. Real yields would rise for the same reason subprime interest rates are higher. This is not a normal situation though. It is an abnormal situation. We will not enjoy the results.
2. The economy grows like it did from 1939 to 2000. Real yields are tied to real growth rates. Higher real growth rates can generate higher real yields.
In my opinion, this economy has very little chance of growing like it has in the past. That rules out #2. I point to long-term employment trends to support my claim. If the exponential trend in employment growth that happened between 1939 and 2000 continued until today, then we'd have 38 million more people employed ("All Employees: Total nonfarm"). Even if we put all 14 million unemployed back to work there would still be 24 million missing workers.
You can see a chart of this on my blog by searching for "37.9 Million Missing Jobs". I also supply the source data so you can see it for yourself. I simply used the data as reported by the government and put an exponential trend line on it.
One reason we had such phenomenal employment growth over that 61 year history was the introduction of women into the workforce. That trend is over though. It peaked. Women now make up half of the workforce.
Further, our massive trade deficit and increased automation in the workplace hasn't exactly been cranking out the jobs lately either.
So when will the 10-year TIPS yield rise to 2% and stay there? I wouldn't hold my breath.
The rise in jobs can't indefinitely much exceed the growth in the population of working age. Most of the 37.9 million "missing" jobs are there because the growth in the working age population is slower than earlier.