Join Early Retirement Today
Thread Tools Search this Thread Display Modes
TIPS yielding 3%
Old 10-12-2008, 06:22 PM   #1
Thinks s/he gets paid by the post
FIRE'd@51's Avatar
Join Date: Aug 2006
Posts: 2,366
TIPS yielding 3%

Has anyone noticed that 10-year TIPS are yielding nearly 3% real? According to Bloomberg, 10-year TIPS are yielding 2.96%, while 10-year Treasuries are yielding 3.87%, a break-even inflation rate of only 0.9%. Frankly, I don't understand why the implied inflation rate is so low.

The only thing I can think of is that a prolonged severe downturn will result in much lower inflation, with the high real rate implying a very high demand for credit by the US government. Usually, the real rate would fall during an economic downturn reflecting lower demand for money from the private sector. The surprising thing to me is that the market seems to be saying the government can borrow all this money without causing inflation down the road.

FIRE'd@51 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 10-12-2008, 06:34 PM   #2
ziggy29's Avatar
Join Date: Oct 2005
Location: Texas
Posts: 15,624
That last sentence is what puzzles me. I understand the deflationary pressures created by a crash in financial markets and in a serious contraction of the economy. But I have trouble seeing those pressures overwhelm the inflationary pressures caused by all the borrowing and money-printing that will be needed to get out of it.

"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 10-12-2008, 07:21 PM   #3
Full time employment: Posting here.
Join Date: Nov 2005
Posts: 882
The muni bond yield curve is rising across the board - what you'd expect if expectations are for increasing inflation.

The quoted NAV for my Vanguard TIPs fund has plunged the last couple of weeks. I won't speculate on causes - I've forgotten the details on how TIPs work.
socca is offline   Reply With Quote
Old 10-12-2008, 07:39 PM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Gone4Good's Avatar
Join Date: Sep 2005
Posts: 5,381
The world isn't worrying about inflation right now. The massive deleveraging going on is highly deflationary.

Keep in mind that the government creates money through the banking system's ability to turn $1 of deposits into multiple $'s of loans. If banks aren't lending (which they aren't) the Federal government has a very difficult time injecting liquidity into the economy. This is a classic "liquidity trap" which is deflationary.
Gone4Good is offline   Reply With Quote
Old 10-12-2008, 08:04 PM   #5
Full time employment: Posting here.
Join Date: Nov 2005
Posts: 882
Originally Posted by . . . Yrs to Go View Post
The world isn't worrying about inflation right now. The massive deleveraging going on is highly deflationary.
So an alternative hypothesis for rising muni rates would be fears of increasing defaults if things get really bad? This explanation works for me, too.

I'm actually less worried about rising defaults than rising inflation, because I own muni bond funds rather than individual bonds. I hope my confidence isn't misplaced.
socca is offline   Reply With Quote

Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off

Similar Threads
Thread Thread Starter Forum Replies Last Post
Savings bonds yielding 8.36% soupcxan FIRE and Money 30 08-17-2008 08:25 PM
TIPS tip: nix the TIPs, they're worth zip. pedorrero FIRE and Money 7 05-13-2007 12:00 PM
tips/tips fund Mysto FIRE and Money 1 03-19-2007 09:23 AM
TIPS vs. Vanguard TIPS Fund Cut-Throat FIRE and Money 16 08-15-2006 05:32 AM
TIPS vs. Mutual Fund with TIPS? Telly FIRE and Money 12 07-16-2003 11:21 AM


All times are GMT -6. The time now is 05:54 AM.
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2018, vBulletin Solutions, Inc.