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The 5-Year TIPS is currently yielding a whoppingly low 0.17%. If the markets can squeeze that last 0.17% out of them I'll be able to finish up part of my series on the Death of Real Yields. Hurray!
It offers more questions than answers though.
How will Bernanke and company be able to determine inflation expectations from TIPS yields once they hit zero (since zero is the absolute floor)? Will TIPS still be "wildly overvalued" (as some would argue) once they hit zero? Will people invest in non-inflation adjusted treasuries instead or a falling inflation adjusted stock market on the thought that they too can drop to zero (before stagflation drains them of every last penny)?
These questions and many others will be answered on next week's episode of Soap.
I was thinking of using Happy Days (another show from the 1970s) instead, but just didn't have that much sarcasm in me today!
Source Data:
Bloomberg: Rates and & Bonds
Real Estate Newsletter Articles this Week: Existing-Home Sales Increased to
4.15 million SAAR in November
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At the Calculated Risk Real Estate Newsletter this week:
[image: Existing Home Sales]*Click on graph for larger image.*
• NAR: Existing-Home Sales Increase...
11 hours ago
6 comments:
Stag,
Bernanke should realize that the only way to maintain low inflation expectations is to keep inflation low.
The more I see, the more I think that common wisdom just doesn't exist. Bernanke keeps giving investors what they want, not what they need.
http://quotes.ino.com/chart/?s=NYBOT_DX&v=d6
Not only are you not getting any yield, what it is being paid out in is swiftly becoming toilet paper. Bummer.
Kevin
Inflation Indexed Treasury
COUPON MATURITY
DATE CURRENT
PRICE/YIELD PRICE/YIELD
CHANGE TIME
5-Year 2.000 04/15/2012 107-28 / .08 0-06 / -.051 06:12
10-Year 1.625 01/15/2018 104-14 / 1.15 0-15 / -.050 07:08
20-Year 1.750 01/15/2028 99-17 / 1.78 0-14 / -.026 07:08
30-Year 3.375 04/15/2032 132-09 / 1.73 0-18 / -.025 07:08
Unfortunately, few remember "When Things Were Rotten" in the 1970s. Rather than just hoard soap, perhaps I'll also shower less.
5-Year 2.000 04/15/2012 107-28 / .08 0-06 / -.051 06:12
I've got an itchy trigger finger while watching that 0.08%. Once it is gone, we're zero bound and I can issue a sarcastic death certificate for the five year real yield. That won't stop nominal treasuries from heading further into negative territory though. With inflation potentially boundless, there's no limit on how much you can lose without inflation protection.
At 0.08% inflation adjusted growth, it can't keep up with inflation after taxes. I would argue that you could still be doing worse though. Take the stock market today for example.
If you are a saver, your only other "real" choice is to hoard. I'm starting to run out of ideas. I'm doing math on projected lifespan vs. number of socks needed. I think I might have enough! *gallows humor*
Unfortunately, few remember "When Things Were Rotten" in the 1970s.
Haven't you heard? The "long term" began in 1982. ;)
I saw it hit -.01% on Bloomberg.
I saw it hit -.01% on Bloomberg.
Nice, lol.
In theory, that should just be temporary. The worst yield you can get at a TIPS auction is 0%.
You have looked into things not best seen. You have seen the undead of real yields and it may forever change you. We must not speak of it again lest terrible things happen! ;)
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