Skip to comments..5-Year TIPS Sold At Negative Yield For First Time
Posted on 10/25/2010 9:24:21 PM PDT by Fpimentel
NEW YORK (Dow Jones)--The government sold five-year Treasury inflation protected securities Monday at a negative yield for the first time ever, a sign of investors' strong conviction that the Federal Reserve will buy more bonds, which could stoke inflation.
The government sold $10 billion in previously sold five-year TIPS for negative 0.55% yield after selling them at a 0.550% yield when they were originally sold in April. Because the market expects inflation will be positive over the next five years though, the expected return for the five-year TIPS is still positive.
Investors have been buying TIPS, which provide protection against ...
(Excerpt) Read more at online.wsj.com ...
isn’t high inflation the only way to pay off all our debts?.....of course that means the govt workers will be making about a million dollars a year...
Because the market expects inflation will be positive over the next five years though, the expected return for the five-year TIPS is still positive.
DEflation would be a real problem then.
What is really scary is the treasury has been selling these inflation protected treasury’s since 1997. As inflation goes up the US is on the hook for more money. To stop run away inflation, the Fed could be forced to raise interest rates, but with 5 Trillion in short term debt the US needs to refinance, it could lead to a doubling of of the debt. we are talking 20 to 30 Trillion dollars within the next 10 years.
So we take a bunch of out-of-work people and make their day-to-day living expenses higher? Can someone take the ball away from the Fed?
The problem, as I see it, with TIPS is that they are adjusted for inflation as reported by the government, which consistently under-estimates how quickly the value of the dollar is declining. I bought a fairly small amount of Series I US savings bonds half a dozen years ago, and they have accumulated almost no interest since then. They supposedly protect my principal against inflation, and the dollar has declined at least 20% over that time, relative to other currencies and to a broad range of commodities. But by the highly restrictive way that the Federal Government defines and measures inflation, we haven’t had any.
This is frightening; I hope November’s elections really show just how angry people are...
I’ve been anticipating inflation for 5 years now and all I’ve gotten is deflation.
Is this supposed to act as a hedge against inflation? I suppose only losing 0.55% per year in these bonds is better than basically losing 5-10% of your cash per year due to the same level of inflation. The higher the inflation, the better off your cash is with these bonds.
Where? Groceries? Utilities? Services? Is gasoline cheaper than it was 5 years ago?
I’ll have to check with my wife. Of course I have a teen and a tween and based on casual observation, food consumption has indeed increased so a year over year comparison in Quicken may be deceiving.
The cost of natural gas is down considerably the past few years and I see a difference of at least 10’s of dollars each month.
Well, NJ Transit to NYC is higher. My trash service is down since they stopped the “fuel surcharge”. Ditto the lawn cutting service. Private school fees are up but that’s something that would never go down. The cost of a sandwich at my favorite deli has been the same for years. Overall I think services are a mixed bag.
Is gasoline cheaper than it was 5 years ago?
I don’t know about 5 years ago but it’s definitely lower than 3 years ago but not by as much as it was a year ago.
My income has certainly suffered deflation. I think I might hit my quota for the first time in 4 years. I’m definely hoping for inflation in this part of the economy.
That's not deflation. It's a natural, free-market response to decreased demand and increased supply. Deflation can only take place when the money supply is reduced.
Price decreases because of increased supply or technological advancements in production are very good things. They mean that the purchasing power of each dollar is increasing.
Don't let the idiots in the media (or the Fed for that matter) scare you into fearing deflation. It simply cannot happen -- but I do think your planning for inflation has just about ripened.