Are people overreacting to the negative real yield in TIPs yesterday?

Discussion in 'Wall St. News' started by nitro, Oct 26, 2010.

Is there an overreaction of yesterday's TIP auction negative yield?

  1. Yes. This is more fear-mongering.

    6 vote(s)
  2. I no. Be afraid, be very afraid.

    3 vote(s)
  3. I don't know.

    2 vote(s)
  4. I don't care.

    2 vote(s)
  1. nitro


  2. nitro


    "...TIPS are very probably not expensive but on the contrary cheap to Treasuries, at these negative yields - at the short end of the curve, at least. The 5y TIPS at this level will perform better over its life than the 5y Treasury note as long as inflation averages 1.75% or more over the next 5 years (that is, as long as ex post realized inflation turns out to be greater than a priori expected inflation). As with the economic data, this bet boils down to whether the Fed can achieve the level of inflation (or the price level) that it desires. The folks buying the 5y TIPS believe that it can. (Circling back to the Existing Home Sales numbers, inventory is now above 4mm units, making such a bet on inflation more problematic in the short-term but five years is a lifetime in monetary policy - see Friday's comment)...."

    Hard to believe that over a five year period the FED can't handle inflation. Just raise IRs to 17% like Vocker did, or take away QEx. I don't see the problem.
  3. All the TIPS show is that "Tips" investors do not expect inflation at large levels for the next 5 years and looking for the Feds to QE2 a billion a month in printing money until they get what they want....hence driving rates even further down.
  4. An overwhelming majority of people don't even understand what a real yield on a TIPS is, let alone its implications...
  5. zdreg


    the problem is the double mandate of the fed of price stability and full employment. congress will scream and the american people are soft.

    price stability will lose out everytime. bundesbank has 1 mandate price stability.
  6. seems like a TIPS would always be losing if its tied to something like shorting a bond to generate its return.
  7. dtan1e


    its basic economics that printing may not lead to full employment, analogy someone used was pushing a string uphill, whereas it works very well for the reverse, that is pulling a string, quite surprised Ben doesn't know this
  8. Ha, just raise interest rates now. $50 billion of Apple´s cash holdings is one reason enough. :cool:
  9. zdreg


    could you please explain
  10. nitro


    #10     Oct 26, 2010