Click to enlarge.
Here's another look at that same data.
Click to enlarge.
Apparently a monetary policy that involves driving up the price of gasoline to prop up the price of housing is not always guaranteed to work. Who knew?
Source Data:
Census: Median Sales Prices of New Homes (pdf)
EIA: Petroleum Prices
OT, but your sort of thing.
ReplyDeletehttp://ftalphaville.ft.com/blog/2010/10/07/363201/how-low-can-tips-go/#comments
dearieme,
ReplyDeleteThanks for the link!
I find the analysis interesting but I don't agree with it.
Forget -0.4 in 2010 then, try -18 in 1861.
I would bet all that I own that bond investors in 1861 did not *willingly* accept a negative interest rate of -18%.
It seems far more likely that inflation simply sneaked up on them. Had TIPS existed then I'd be very surprised if investors accepted -18% at the time of purchase. Very surprised.
Comparing TIPS directly to nominal bonds is silly to me. TIPS are bonds with inflation insurance. It's like asking how much money you could expect to lose in an auto accident. Nominal bonds are similar to drivers without insurance. TIPS are similar to drivers with insurance. Clearly they both don't take on the same risks.
Further, these days we can each buy up to $10,000 per year in 0.0% I-Bonds (currently 0.2%). Surely that must put some pressure on how low 5-year TIPS rates can go.
In my opinion, there is no way the government would be bold enough to offer negative interest rate I-Bonds. I would make a substantial bet that 0% is the floor. It hit that very floor in 2008 and it went no lower.
And lastly, here's something else to consider.
Treasury Marketable Securities Tender Instructions (pdf)
Note About TIPS: Should the accepted auction yield be 0% or less, the security will not have regular semiannual interest payments. The yield will be adjusted for inflation throughout its lifetime, thus posting changes at maturity (or sale). In this case, where the accepted auction yield is 0% or less, the interest rate will automatically be set at 0% (never anything lower) for all buyers.
I'm not sure it is even possible to get a negative real interest rate during an initial TIPS auction, any more than you can get a negative interest rate in a 3-month T-Bill auction.
Rates can certainly be negative between auctions. I don't think it is sustainable though. Time will tell!
The next 5-year TIPS auction is in 2 weeks. It is a reopening of a previous auction. I'm not sure what will happen. You can bet that I'll be watching!
As an individual investor, I cannot bid competitively. I'd sure love to see the instructions for that though. Can institutional investors actually bid negative interest rates?