Are TIPS in a Bubble?

U.S., in Nod to China, to Sell More TIPS

Even with an increase, TIPS would remain a fraction of the overall market for Treasurys. Of the $6.66 trillion of government bonds issued between Oct. 1, 2008 and June 30 of this year, just $44 billion were TIPS.

All things being equal, it seems 150 investors bought regular bonds for each investor who bought TIPS. I suddenly feel very lonely. I was one of those investors in the latter group.

Put another way, if the government bond market sales were represented by a full gallon of milk (128 ounces) during the period, then TIPS could be represented by less than a single one ounce shot glass of Bacardi Rum.



I might be wrong, but I suspect that the $0.044 trillion invested in TIPS in the 9 months ended June 30th does not adequately describe the size needed for a serious American-style investment bubble. Those remaining $6.616 trillion of government bonds might qualify though. Only time will tell!

For those having a problem with my Bacardi Bottle Rocket analogy, here's a more serious chart.



And now, for some serious sarcasm...

Just look at all that incentive to keep long-term inflation in check. I have no doubts that the inflation protected TIPS market can fend off serious inflation all by itself!

By the way, 10% inflation would require $4.4 billion just to pay the adjusted principal on those TIPS in the chart. $4.4 billion in a year sure rings a bell. That's scary huge! It's sending me right back down memory lane.

October 16, 2008
Banks borrow record $437.5 billion per day from Fed

Banks and dealers' overall direct borrowings from the Fed averaged a record $437.53 billion per day in the week ended October 15, topping the previous week's $420.16 billion per day.

Oops. What I was remembering was 100 times bigger and it was per day, not per year. Nevermind. I temporarily forgot that the new math for the new economy means that anything 4.4 times bigger than an original "cash for clunkers" program is actually chump change, and is therefore likely to simply get lost in some politician's couch.