This page has been archived and commenting is disabled.

4.5 Year TIPS Auction Closes At -0.55%, First Ever Negative Yield

Tyler Durden's picture


As we reported some time ago, the weird stuff in TIPS land continues, and was brought to the surface during today's 4 Year 6 Month TIPS auction, which closed at, drumroll, -0.55%. That's right, a yield of negative 0.55%. This compares to +0.55% in April. TIPS Investors better hope that the CPI eventually captures all the fun that is happening in the Rare Minerals space.


- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mon, 10/25/2010 - 13:10 | 675377 Rahm
Rahm's picture


Mon, 10/25/2010 - 13:58 | 675581 whatsinaname
whatsinaname's picture

CPI formula will be changed to not account for wheat, copper, silver, gold, cotton, soya beans, corn, beef, cocoa, rare earths prices. No worries.

Mon, 10/25/2010 - 14:13 | 675646 Rahm
Rahm's picture


*wipes brow*

Please continue as previously scheduled...

Mon, 10/25/2010 - 14:41 | 675758 redpill
redpill's picture

Well it's important to strip out things that go up, er I mean, are volatile and may skew the data.  Don't you see?

Mon, 10/25/2010 - 14:15 | 675658 Clayton Bigsby
Clayton Bigsby's picture

and counting....

got a question for the crowd, however - kids, correct me if I'm wrong here, but doesn't accepting a negative yield on a security whose principal is indexed to CPI constitute a massive bet on future inflation??  (assuming it was indeed truly market participants that participated in said auction and not Fed-by-proxy)

Mon, 10/25/2010 - 14:46 | 675773 kaiserhoff
kaiserhoff's picture

Could be.  It could also be a bet on massive volatility, and unlimited risk. 

As an arb, I wouldn't touch that stuff, except as a hedge for loads and stacks of puts.

Food for thought.

Mon, 10/25/2010 - 14:51 | 675790 TumblingDice
TumblingDice's picture

Assuming this security is "inflation neutral" and the trade is to buy it at negative yields, that would not be a bet on deflation nor inflation but on the idea that real returns on other comprable trades would be negative.

The buyer is assuming that no matter which way the CPI goes the value in all other places where one can put their dollars would be eroded. Inflation will not create positive real returns and neither would deflation.

Mon, 10/25/2010 - 15:56 | 675990 Spitzer
Spitzer's picture


I dont get how they index it for CPI

Mon, 10/25/2010 - 16:13 | 676026 EscapeKey
EscapeKey's picture

In which case, surely any buyer would buy regular 5-years instead.

Mon, 10/25/2010 - 16:33 | 676063 TumblingDice
TumblingDice's picture

Not necessarily, if one acknowledges that the usual relationship of higher treasury rates=higher inflation is broken.

A plunge in bond prices would be the trigger for deflation since it would spell the end of easy (understatement of the day I'm sure) credit. Mortgage rates, among other conditions that let insolvent entities stay afloat, would skyrocket putting a choke hold on credit. Sustained higher bond prices mean inflation since the said credit would flow into the economy rather than tbonds. A five year bond would lose value either way.

Tue, 10/26/2010 - 18:13 | 678895 Miles Kendig
Miles Kendig's picture

good to see you mf'er

Fri, 10/29/2010 - 02:02 | 685234 TumblingDice
TumblingDice's picture

You too. Good to be back. Living in Korea makes participation in discussions a bit of a hassle.

Fri, 10/29/2010 - 10:33 | 685678 RockyRacoon
RockyRacoon's picture

Missed ya, Dice!  Good to see you weighing in.

Mon, 10/25/2010 - 13:11 | 675387 Nolsgrad
Nolsgrad's picture

 low yield of -.75%


Mon, 10/25/2010 - 14:37 | 675744 Turd Ferguson
Turd Ferguson's picture

Wow, you've got to be one stoopid, brayn-ded mofo to be buying these.

Mon, 10/25/2010 - 15:04 | 675835 jkruffin
jkruffin's picture

Well, the American public is this stupid, because you can bet no one else out there is buying this kinda crap except Helicopter Ben to stave off a failed auction.  I haven't looked at takedowns on this yet, but these yields on Treasuries are ridiculous now, and the next bubble to pop is going to be the interest rate bubble.

How can there be no inflation?  Anyone gone shopping for groceries lately?  Coffee alone is up $3 since last month.  Wal-mart had it for $5.88 and its now $8.84 in one month.  All other food prices are higher as well.  Sam's club prices, which is the same as saying Wal-mart Bulk,  has higher prices than regular Wal-mart. 

Benny is going to drive us all into poverty with his ignorance.  Let this shit crash, and re-set everything.  Quit trying to prop up failed monopolies and failed markets. 

Mon, 10/25/2010 - 15:19 | 675888 ZeroPower
ZeroPower's picture

Typically retail doesn't buy TIPS, smart money use them as a hedge. 

Basically TIPS investors are expecting inflation to be higher than nominal bond yields suggest, and hence the neg yield (which, in reality, would still be a +NPV for the purchaser)


Mon, 10/25/2010 - 16:18 | 676035 Temporalist
Temporalist's picture

Not true.  I know someone that I advised against purchasing them when asked earlier this year.

Mon, 10/25/2010 - 16:35 | 676086 Commander Cody
Commander Cody's picture

My TIPS are up 11% this year.  Just waiting for the moment to pull the trigger.

Mon, 10/25/2010 - 16:44 | 676093 Temporalist
Temporalist's picture

The PMs I recommended are up more...if that was your point.  38% Ag, 19% Au, 44% Pd.

Tue, 10/26/2010 - 02:48 | 677011 ZeroPower
ZeroPower's picture

I hope your clients enjoy losing $ in your 2/20

Mon, 10/25/2010 - 13:12 | 675388 EscapeKey
EscapeKey's picture

So, I guess that this is a gamble that inflation will pick up down the road, and hence the yield will turn positive? But even if it does, surely capable investors who know their stuff knows that the inflation figure it's attached to is manipulated?

I suppose it's a fractionally better bet than 2.4% 10-years, but only fractionally.

Mon, 10/25/2010 - 13:17 | 675413 Spitzer
Spitzer's picture

I dunno

wouldn't the Fed have to sell tips in order to udjust their yield for the CPI ?

Mon, 10/25/2010 - 13:54 | 675568 HarryWanger
HarryWanger's picture

The point is, negative yield will push people into other investments, i.e. small business and equities. Equities create "wealth" which in turn creates more consumption thus demand thus increased manufacturing and employment.

If it works, Bernanke will go down as one of the greatest economists in history. If not, we're in for another lost decade or two.

Mon, 10/25/2010 - 14:04 | 675604 Minion
Minion's picture

The increase in consumption you mention creates factory investment and employment in the countries which produce the products.  Lost decade it is - the companies most likely to respond to increases in consumption do not own factories in the US.  Bernanke will stimulate emerging markets and we will get a lost decade (already had one if you don't count the asset bubbles).

Mon, 10/25/2010 - 14:18 | 675672 Caviar Emptor
Caviar Emptor's picture


Mon, 10/25/2010 - 14:25 | 675697 HarryWanger
HarryWanger's picture

Small business creation will lead to innovation and employment in the U.S. A push out of treasuries by bringing yields negative will stimulate investment into small business. I'm not talking about spurring investments in Apple which manufactures their iGadgets in China. I'm talking about business creation here. That's the whole point.

Mon, 10/25/2010 - 14:49 | 675783 Tortfeasor
Tortfeasor's picture

Replace "yields negative" with "yields to 3% (or 2%, or 1%, or 0.25%), and you have the same meme which has been repeated since '07.  Doesn't get any truer just cause it's been repeated for longer.

Mon, 10/25/2010 - 15:35 | 675936 Rogerwilco
Rogerwilco's picture

The Fed's love affair with ZIRP has indeed stimulated investments in small business, just look at China and Korea. In reality ZIRP is just a sop for the TBTF banks, and like any narcotic, there will be hell to pay when the time comes to go cold turkey. We all would be better off with interest rates at the historical norms for investments and loans.

Mon, 10/25/2010 - 16:57 | 676122 Minion
Minion's picture

Small businesses want revenue, not cheap loans.

Mon, 10/25/2010 - 18:20 | 676243 ZackAttack
ZackAttack's picture

That worked so well for Japan, too, I understand.

Mon, 10/25/2010 - 14:08 | 675624 Spitzer
Spitzer's picture

why did I get the displeasure of receiving this reply ?

Mon, 10/25/2010 - 14:08 | 675626 Tortfeasor
Tortfeasor's picture

Ah, see, there's your problem.  Equities do not create wealth any more than baseball cards create wealth.  The companies can create or destroy wealth, which may or may not result in a change in the market price for the equity, but there is no wealth creation taking place in the market (absent stock offerings).

A negative yield just means people see no short term inflation, but are worried about inflation 2-5 years out, and are willing to pay for the protection.  

Why do you assume that the negative yield would be the impetus for pushing people elsewhere?  Why not low yield?  Where's your inflection point...precisely 0.0%?

Mon, 10/25/2010 - 14:17 | 675662 linrom
linrom's picture

Equities are just a medium of exchange: money for nothing.

Mon, 10/25/2010 - 14:19 | 675682 Caviar Emptor
Caviar Emptor's picture

negative TIPS is just a bet on a big QE wiping out safe yields elsewhere. 

Mon, 10/25/2010 - 15:09 | 675858 jkruffin
jkruffin's picture

Negative TIPS is going to send any buyer of treasury securities over to another country to buy their bonds.  This administration has to be the most clueless ever in office.  I have never seen such a bunch of nitwits in my entire life.  These policies are going to ruin this country for a long long time.  I would about bet today's largest buyer of these pitiful TIPS was none other than Helicopter Ben himself.  I don't think there is anyone else in the world that stupid.

Mon, 10/25/2010 - 16:51 | 676114 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Equities are partial ownership of a corporation. Shares are only worth as much as someone else is willing to pay. There is no "true value" only subjective value.

Mon, 10/25/2010 - 14:11 | 675643 Clayton Bigsby
Clayton Bigsby's picture

velocity, maybe - wealth... mmm, not so much

Mon, 10/25/2010 - 14:17 | 675667 Caviar Emptor
Caviar Emptor's picture

Harry, Harry

No need to get all Yankee Doodle on us. 

The reason TIPS are negative is people are betting that the Fed will Hoover up all remaining "safe" yields, ie after QE you won't be able to get meaningful and appropriate yield in Treasuries. 

Lowering interest rates to oblivion is the Fed's Swiss army knife to "cure all the ills in the economy" and to save itself out from under the weight of crushing debt that needs to be rolled forward (lots maturing in Jan). Unfortunately it's the only trick they know and it's dead wrong for the US.

Now yes it's true Ben is attempting to decrease "savings" and force money into riskier assets to avoid the "liquidity trap". But here's the problem: the money has and will simply "Fly to China" and out the window to fund other economies, buy Korean flat screens, Italian suits, Japanese and German cars....Anywhere but here. SO we're getting biflation instead if the INflation that they hope to create: costs will rise, US demand will not. That's because employment, housing and retirement benefits will continue deflating on their merry way. So biflation will ensure that all buying power will be crushed. The middle class will be decimated further. And everyone else will benefit. Now tell me that's a good plan for the US. 

Mon, 10/25/2010 - 13:12 | 675391 Spitzer
Spitzer's picture

Nothing is in a bubble when people want to buy it.

Mon, 10/25/2010 - 13:21 | 675431 SheepDog-One
SheepDog-One's picture

Depends on the 'people', who are they? Certainly not retail.

Mon, 10/25/2010 - 18:22 | 676244 Bananamerican
Bananamerican's picture

Sheepdog, please tell me YOU didn't junk that....

Mon, 10/25/2010 - 13:33 | 675484 Eternal Student
Eternal Student's picture

Whoever junked you must be new around here, and completely missed the joke.

Mon, 10/25/2010 - 13:44 | 675533 iota
iota's picture

Someone needs to knock up a macro for that, it's fast attaining meme status.

Mon, 10/25/2010 - 14:05 | 675611 macholatte
macholatte's picture


It's in here at about :55

Erin Burnett Yells At EuroPacific's Michael Pento: YOU ARE SO RUDE!

Mon, 10/25/2010 - 13:35 | 675496 alien-IQ
alien-IQ's picture

Oh really? Tell that to the people that bought real estate in 2005-07. I suspect some might disagree with you.

Mon, 10/25/2010 - 13:37 | 675504 tmosley
tmosley's picture


Mon, 10/25/2010 - 13:44 | 675530 Aknownymouse
Aknownymouse's picture

now don't be too hard on him.  He is obviously an "alien"

Mon, 10/25/2010 - 14:05 | 675609 reading
reading's picture

Oh really? Tell that to the people that bought real estate in 2005-07. I suspect some might disagree with you.

New Here?  This has been a joke -- used regularly -- since the famous words were uttered on's not a bubble if someone wants to buy it. [insert Joe Saluzzi eye roll]

Mon, 10/25/2010 - 16:24 | 676055 Goldilocks
Goldilocks's picture

@Spitzer, "Nothing is in a bubble when people want to buy it."
Is this yesterday's joke about "nothing" rehashed?
Go ahead & buy "Nothing" ... but don't expect a bailout or any other type of fraud subsidy.
Yah, that's a joke alright … but, savers aren’t laughing.

Mon, 10/25/2010 - 16:53 | 676117 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

Nothing is a bubble when you are trying to hawk it! ;)

Mon, 10/25/2010 - 13:13 | 675392 bugs_
bugs_'s picture

Don't let the COBOL programs see that negative rate!!!

Mon, 10/25/2010 - 14:21 | 675685 aldousd
aldousd's picture




Which one is YOUR Treasury Dept using?

Mon, 10/25/2010 - 15:08 | 675853 BigJim
BigJim's picture

You optimist you. I think we'll be using long double, myself.

Mon, 10/25/2010 - 13:14 | 675397 Waterfallsparkles
Waterfallsparkles's picture

At some point the Market will not go up with America going down the tubes.

Mon, 10/25/2010 - 13:51 | 675553 President Palin
President Palin's picture

or... the market will not go up even though America's debt levels are still rising....

print Benny, print...

Mon, 10/25/2010 - 13:53 | 675558 Tinsu
Tinsu's picture

I agree on this point.  The question is "How long before the market realizes this?"

Mon, 10/25/2010 - 14:00 | 675593 whatsinaname
whatsinaname's picture

there is no market - its broken and was thrown by the wayside a long long long time ago..

Mon, 10/25/2010 - 13:58 | 675580 HarryWanger
HarryWanger's picture

Fed is creating inflation. That inflation will push equities higher. So even with the country in very sluggish growth, equities will indeed push higher assuming inflation takes hold. America is not "going down the tubes". We're still struggling but definitely out of the ER.

Mon, 10/25/2010 - 14:02 | 675598 No One
No One's picture

So we're out of ER, but still in a medically induced coma in the ICU.


Mon, 10/25/2010 - 14:07 | 675622 reading
reading's picture

When they fail to get wage inflation -- which they ain't gonna get with 17% real unemployment -- this experiment will fail miserably and no one will be left to buy iPads.

Mon, 10/25/2010 - 14:18 | 675670 HarryWanger
HarryWanger's picture

They were successful in 1982 with unemployment reaching nearly 11% vs. 9.6% now. Only then, inflation was raging and had to be brought in significantly. All the while the unemployment rate continued to drop in that environment.

Mon, 10/25/2010 - 14:27 | 675705 tmosley
tmosley's picture

No debt back then.  BIG difference.

Mon, 10/25/2010 - 14:59 | 675814 Eternal Student
Eternal Student's picture

+1. But a WHOOSH on Harry I do believe.

Mon, 10/25/2010 - 16:05 | 676005 dstein12
dstein12's picture

And if unemployment was calculated now in the same fashion it was back in 1982, we'd be looking at a 17-18% number.  Check the U6...

Mon, 10/25/2010 - 14:51 | 675784 Caviar Emptor
Caviar Emptor's picture

That was then, but this is now. 

If you didn't get the reference you probably weren't around back then. The differences between 1982 and now are stark and almost not comparable. 

The economy was expanding big time before Reagan/Volcker's induced recession and after. GDP has never reached the peaks reached in the 1970s and early 80s since and have been on a declining bias. The US produced more than a third of the world's goods and services. We had a growing labor force. Deficits had only just started to become unreasonable after a long post war decline. We had an expanding and vital middle class, the average person was benefitting from the economy.

The list of differences is too long and beyond the scope. Night and day.

Mon, 10/25/2010 - 15:49 | 675973 Rogerwilco
Rogerwilco's picture


There was a generational shift in 1980 and renewed optimism after a decade-long shit storm of failed leadership and the hangover from Vietnam. Yes Volker jacked rates to the moon, but a popular sense of purpose and the common will marshaled by Reagan were also factors in pulling this country out of that funk. It's interesting to compare some of the TV and print ads from '84 to what we see today. Optimism really is infectious.

Mon, 10/25/2010 - 14:08 | 675625 Minion
Minion's picture

FED creates more inflation in commodities and emerging markets than US equities, which depend on low commodity prices and cheap labor........... I wonder what the sum total of dollar destruction will be, when the world's investors have already voted for real things and real productivity, rather than the American brand of multinational corporation...... :D

Mon, 10/25/2010 - 14:11 | 675642 barkingbill
barkingbill's picture

trust the guy with the red white and blue symbol

Mon, 10/25/2010 - 14:13 | 675649 homersimpson
homersimpson's picture

" definitely out of the ER." Really? Then how come everytime the "patient" comes out of ER there's a really long IV attached to the "patient" in the form of government backstops and taxpayer-funded equity rallies?

Mon, 10/25/2010 - 14:19 | 675678 Spalding_Smailes
Spalding_Smailes's picture


A zombie bank is a financial institution that has an economic net worth less than zero but continues to operate because its ability to repay its debts is shored up by implicit or explicit government credit support.

Mon, 10/25/2010 - 14:25 | 675696 Caviar Emptor
Caviar Emptor's picture

Yes. Only trouble is equities are denominated in dollars. Inflation will crater the buying power of those dollars as will diminished faith in the currency. It's a hollow victory if you double your money in stocks if the purchasing power of those dollars is less than half. Gold protects against inflation and currency risk. 

Mon, 10/25/2010 - 15:15 | 675876 A Nanny Moose
A Nanny Moose's picture

Rhetorical question: Are equities rising equities, or is that the dollar is falling?

AAPL @ $600 does you absolutely no good when a loaf of bread and a gallon of gas cost $20.

Mon, 10/25/2010 - 13:19 | 675423 sweet ebony diamond
sweet ebony diamond's picture

They are relying on numbers provided by the Bureau of Propoganda?

Mon, 10/25/2010 - 13:20 | 675427 SheepDog-One
SheepDog-One's picture

And the markets go WILD wahoooo chasin those 70 P/E stocks!

Mon, 10/25/2010 - 13:21 | 675432 hedgeless_horseman
hedgeless_horseman's picture

Less is more.  I wish governments would learn this.

Mon, 10/25/2010 - 13:50 | 675547 firstdivision
firstdivision's picture

They have.  Less gold = moar dollars!

Mon, 10/25/2010 - 13:22 | 675439 High Plains Drifter
High Plains Drifter's picture
Falling Into the Chasm By PAUL KRUGMAN


our buddy Paul says that the reason why the President's program is not working is that we didn't spend enough money yet. Oh my, this man won a Nobel Prize? 

Mon, 10/25/2010 - 13:41 | 675521 Zero Debt
Zero Debt's picture

krugman is smoking government-sponsored crack

Mon, 10/25/2010 - 13:54 | 675563 Dr. No
Dr. No's picture

 "Oh my, this man won a Nobel Prize?"  The President or Krugman?  You were not clear on your question.  Oh wait, they both won!

Mon, 10/25/2010 - 14:44 | 675766 EscapeKey
EscapeKey's picture

Yeah, the president won the Nobel prize in economics, Krugman won the peace prize.

Or at least, that would have made more sense.

Mon, 10/25/2010 - 15:25 | 675905 BigJim
BigJim's picture

What pro-Krugmanites always fail to mention, when they inevitably fail not to mention that he is a "Nobel Prize winner for economics", is that he won it for his work in micro and macro economics, not monetary theory. So this 'appeal to authority' is as flawed and uninformed as his analyses of the subject.

They also fail to mention that the 'Nobel Prize for Economics' (actually, The Nobel Memorial Prize in Economic Sciences) was not instituted by Alfred Nobel back in the late 19th century, but in 1968 by... the Swedish Central Bank.

So he's not even a Nobel prize winner, either.

Mon, 10/25/2010 - 13:26 | 675447 kaiserhoff
kaiserhoff's picture

As the gladiators said to Caesar, "we who are about to die, salute you."

Mon, 10/25/2010 - 13:34 | 675497 trav7777
trav7777's picture

For those about to rock, we salute you - AC/DC

Mon, 10/25/2010 - 13:25 | 675451 Boilermaker
Boilermaker's picture


Market ramp continues without even a hiccup.

Mon, 10/25/2010 - 13:29 | 675467 Mr Lennon Hendrix
Mr Lennon Hendrix's picture

"Vote blue!"


Mon, 10/25/2010 - 13:42 | 675526 SheepDog-One
SheepDog-One's picture

Until it doesnt. They really dont care what americans think with their 5 minute max attention spans.

Mon, 10/25/2010 - 13:55 | 675573 UGrev
UGrev's picture

I forgot what I was going to say...

Mon, 10/25/2010 - 13:29 | 675465 antisoshal
antisoshal's picture

I must be retarded because I can't possibly see a benefit to buying one of these in a foreseable circumstance. If you believe in deflation, then keep your money and avoid paying the .75% right? I'm lost. The only reason this would make sense is if you think your money simply isnt safe ANYWHERE else including cash in your mattress, so you are paying a mob fee to have them "hold on to it" for you. If someone can explain this please do.

Mon, 10/25/2010 - 13:32 | 675477 SheepDog-One
SheepDog-One's picture

Apparently the 'smart money' now feels content to park their money at a guaranteed loss, but the loss is acceptable to any alternative out there? Ominous indeed.

Mon, 10/25/2010 - 14:10 | 675637 cat2
cat2's picture

By 'smart money' you mean Fed sponsored primary dealers, right?

Or would anyone other than "Friends and Family" of MBS's sold to the fed buy this stuff?

Mon, 10/25/2010 - 13:42 | 675525 AR15AU
AR15AU's picture

If you have $1 billion in cash, and its in a bank, and the bank goes under, you may lose it (FDIC only goes to $250k).

So, maybe the guaranteed loss of 1% in treasuries seems better because your money is parked with the government and won't be lost in a bank failure?

Mon, 10/25/2010 - 13:44 | 675534 SheepDog-One
SheepDog-One's picture

Sure seems like thats their bet, but I wouldnt be betting much on the govts side either. What makes a govt guarantee so great? Trust the federal govt...just ask any native american.

Mon, 10/25/2010 - 14:13 | 675647 Minion
Minion's picture

It's a bet on cash and cash equivalents in anticipation of risk assets getting liquidated during a debt collapse.  Gold went down in 2008 (briefly) as funds answered margin calls.... The idea is to go to cash and wait for blood in the streets.

Mon, 10/25/2010 - 13:51 | 675549 Joe Davola
Joe Davola's picture

If you have a billion in cash and aren't named Lehman, you don't have any worries.

Mon, 10/25/2010 - 14:04 | 675606 tmosley
tmosley's picture

Didn't they recently remove the limit?

Mon, 10/25/2010 - 14:20 | 675681 MsCreant
MsCreant's picture

Apparently not. These folks have lost their deposits because the FDIC could not find a buyer.

Mon, 10/25/2010 - 14:18 | 675671 spencer
spencer's picture



The standard insurance amount is $250,000 per depositor, per insured bank, for each ownership category.

The FDIC’s temporary Transaction Account Guarantee (TAG) Program provides depositors with unlimited coverage for noninterest-bearing transaction accounts at participating FDIC-insured institutions. Noninterest-bearing checking accounts include Demand Deposit Accounts (DDAs) and any transaction account that has unlimited withdrawals and that cannot earn interest. Also included are IOLTA accounts (regardless of the interest rate) and NOW accounts that do not earn more than 0.25% interest. This unlimited protection is only available at insured depository institutions that continue to participate in the TAG Program. The program is temporary and will remain in effect through December 31, 2010, unless extended by the FDIC.

Beginning December 31, 2010 through December 31, 2012, deposits held in noninterest-bearing transaction accounts will be fully insured, regardless of the amount in the account, at all FDIC-insured institutions.


Mon, 10/25/2010 - 14:32 | 675729 tmosley
tmosley's picture

If I were a billionaire and totally ignorant to what is going on in the country, that is certainly where I would park my money.

Of course, if I were REALLY a billionaire, you would know it right away, as the silver market would blow up the next day.

Mon, 10/25/2010 - 13:30 | 675469 bull-market_3.0
bull-market_3.0's picture

Jus so I'm clear, a negative yield implies that people are willing to lose money to be protected from inflation? Correct?

Mon, 10/25/2010 - 13:32 | 675474 redpill
redpill's picture

Yep, but of course they are indexed to CPI, which is manipulated by the government.  So even if there is inflation, you'll still probably lose money.  Whee!

Tue, 10/26/2010 - 03:13 | 677074 ZeroPower
ZeroPower's picture

However, its a bet on the fact that youd lose less money than in any UST not inflation-protected. 

i.e: a 5yr UST will get you LESS return under their current CPI forecasts.

Mon, 10/25/2010 - 13:33 | 675486 SheepDog-One
SheepDog-One's picture

Yep, means the smart money is accepting a guaranteed loss, instead of any alternative out there? Man this crap is about to hit the fan, this is sick.

Mon, 10/25/2010 - 16:39 | 676096 Goldilocks
Goldilocks's picture

The “catalyst” is … gold & silver is money.

Mon, 10/25/2010 - 15:02 | 675825 TonyV
TonyV's picture

Jus so I'm clear, a negative yield implies that people are willing to lose money to be protected from inflation? Correct?

Yes, you are correct. TIPS are inflation adjusted bonds.

Mon, 10/25/2010 - 13:32 | 675479 Clint Liquor
Clint Liquor's picture

Isn't this exactly what the FED policy is aimed at, negative real rates. The last FOMC minutes said 'long term (nominal) rates are too high and inflation is too low'. QE2 will produce negative real rates and that's the plan.

And by the way, screw you China,

Mon, 10/25/2010 - 13:37 | 675503 SheepDog-One
SheepDog-One's picture

Remember the IMF comments a month ago stating that Q/E needs to be $7 trillion...Bernanke cant deliver that and whatever he does do will dissapoint. I bet he gives another 'we're just holding for now, but ready to act' bunch of BS like the last several FOMC announcements. I dont see how they have any way out of this and 10% minimum need to be shaved off the markets.

Mon, 10/25/2010 - 17:17 | 676154 crmckim
crmckim's picture

That's what I'm thinking. To convienient for the meeting to be that close to the midterms. The illusion of a "quaranteed" easing and then blame the power shift in Congress when the markets learn there's no QE2. Easy game for the White House if you ask me. "See, I told you if you voted us out the markets would crash again".

Mon, 10/25/2010 - 13:33 | 675480 TraderTimm
TraderTimm's picture

public void onTick(Instrument instrument, ITick tick) throws JFException {

if(RampJobFlag == "TRUE") {


   } else { PageBernanke.QETime; int QECounter++; }



Mon, 10/25/2010 - 14:08 | 675628 Aknownymouse
Aknownymouse's picture

EXCEPTION - 911CALLBEN: "Internal Stack Overflow Error"

.... blue screen of death ....

Mon, 10/25/2010 - 14:23 | 675692 faustian bargain
faustian bargain's picture


Mon, 10/25/2010 - 13:34 | 675491 AndrewJackson
AndrewJackson's picture

The funny thing is, if you think that the CPI will average over 1.75% you are better off owning the tips then the normal 5-year treasuries. And they say we are not in a bond bubble. This is only going to end in tears.

Mon, 10/25/2010 - 13:36 | 675500 midtowng
midtowng's picture

I've heard that gold and silver are not good things to buy because you are protected from inflation when you buy TIPS.

Shouldn't gold and silver be negative for the year instead?

Mon, 10/25/2010 - 13:44 | 675532 web bot
web bot's picture

This is a great question.

TIPS are denominated in US dollars... and if the US dollar were to collapse... then you can be protected from inflation... but in a worthless currency.

Gold and Silver in a hyperinflation (and dollar collapse environment) become the objective fiat of value for all currencies.


Mon, 10/25/2010 - 13:37 | 675505 truont
truont's picture

Maybe this rise in TIPS demand comes from all the equity liquidations of the 1000:1 insider selling?

Ruh-roh, Shaggy!

Mon, 10/25/2010 - 13:37 | 675507 Caviar Emptor
Caviar Emptor's picture

Paying the Fed for return of capital. 

That's a bet on QE Hoovering up anything in sight that can deliver yield. 

They may be right. The Fed needs to keep yields close to negative as an all-purpose Swiss knife to cure it's own massive forward debt roll, to fight the "liquidity trap", to "put inflation within historical rates", to keep the stock market buoyant, to "discourage savings", and to keep American corporates able to fund themselves at a time when profitability is dropping fast thanks to low demand and rising costs. 

Mon, 10/25/2010 - 13:45 | 675539 Financial_Guard...
Financial_Guardian_Angel's picture

Brilliant, A+. I want me one of them Swiss knives...

Mon, 10/25/2010 - 13:39 | 675511 web bot
web bot's picture

<just shaking my head in disbelief...>


Mon, 10/25/2010 - 13:40 | 675518 SheepDog-One
SheepDog-One's picture

2 years ago the total amount of dollars in circulation was $800 billion to $1.2 talk of $4 trillion is only viewed as a temporary bandaid? This is sick, and will not be a gradual watch as 1 morning in very early November the markets are simply closed, 'on holiday' and will be re-opened at 'some point in the future', just wait and see!

Mon, 10/25/2010 - 15:39 | 675945 blunderdog
blunderdog's picture

"Dollars in circulation" is likely referring to the M1 currency number, which isn't affected by a $4T Treasury play.

M1 likely hasn't changed too significantly in the past two years.  Perhaps a slight increase as some folks have become paranoid enough to keep actual FRNs in their mattresses, but there have definitely not been that many "bills" printed.

Mon, 10/25/2010 - 13:43 | 675529 redpill
redpill's picture

Certainly smells like an early sign of panic.

Mon, 10/25/2010 - 13:48 | 675542 Clint Liquor
Clint Liquor's picture

TIPS are a fools game because Treasury controls the 'reported' CPI. If you aren't sure they understate the CPI, ask someone trying to live on Social Security. COLAs cost the Government billions it is in their self interest to understate CPI.

Mon, 10/25/2010 - 13:59 | 675586 Dr. No
Dr. No's picture

My thoughts exactly.  Odds are the treasury will report low CPI in the years ahead to avoid COLA and TIPS increases.  Why buy steak when you can buy McDonalds?  Why buy McDonalds when you can buy Taco Bell?  CPI = Constant.

Mon, 10/25/2010 - 14:40 | 675757 Caviar Emptor
Caviar Emptor's picture

CPI report, sometime in near future:

"Today we report a core CPI of 0%. Even though oil is at $200/bbl, the cost of a baseball game ticket has dropped from $100 to $50 and beer remained stable. Volatile prices are up, but core prices remain stubbornly dropping. What an economy!"

Mon, 10/25/2010 - 13:52 | 675554 mark@dirtbags
mark@dirtbags's picture

Doesn't it mean that people think that inflation will outpace real interest rates?

This thing is a little scary...but hey, there's no risk! It's backed by the US of A!!!


Mon, 10/25/2010 - 13:52 | 675557 Zero Debt
Zero Debt's picture

So now you have to PAY the government to BORROW money to them!

Wait, I can do that too!

Mon, 10/25/2010 - 13:53 | 675559 AndrewJackson
AndrewJackson's picture

Is anyone else simply amazed by the shear divergence between the commodity and bond markets. They are literally polar opposites right now. Should be interesting when we see a convergence. 

Mon, 10/25/2010 - 13:55 | 675569 AUD
AUD's picture

A capital gain is a capital gain if yields are falling.

If TIPS are marketable securities they can be flipped at a profit.

Mon, 10/25/2010 - 14:02 | 675588 redpill
redpill's picture

Good point, just stand at the back of the turnip truck and sell them to fresh suckers as they fall off, sounds like Pimco's strategy.

Mon, 10/25/2010 - 14:01 | 675594 the grateful un...
the grateful unemployed's picture

is that you behind the paper bag, Mr Gross?


(as aside, Pimcos inflation bond fund does not use CPI, do I smell some arbs going on here?)

Mon, 10/25/2010 - 14:07 | 675621 AndrewJackson
AndrewJackson's picture

I think that is what is happening. As long is the nominal 5 year treasury stays in full retard mode at 1.15%, you will probably see more and more people selling nominal 5-years to buy 5-year tips.

Mon, 10/25/2010 - 14:16 | 675664 the grateful un...
the grateful unemployed's picture

why quibble over a couple of decimal points, its cheap insurance really, and there was a great post about six months ago on the USDA phony crop projections. Turns out that guy was spot on. the underlying theme of that piece was that the USDA thought the global market would take up the slack, and no one would notice their crap numbers. ( I stupidly thought Obama would bring shine some light on the messed up system - like MMS, a travesty during Bush, allowed to continue and bang. BP) however there are reasons to believe the Fed was able to inflate assets, while containing core CPI, and that the unwind will do the opposite.

Mon, 10/25/2010 - 14:32 | 675724 Caviar Emptor
Caviar Emptor's picture

core CPI just reflects languishing demand. More importantly, the PPI-CPI spread is widening big time. That's biflation in action: input costs rising fast, demand not. So Fed experiment is already a bust: housing double-dip, job losses persistently high, incomes stagnant.

Mon, 10/25/2010 - 15:46 | 675966 the grateful un...
the grateful unemployed's picture

hmm, and so if your costs are rising and you have no pricing power, you take product off the market? shortages coming?

Mon, 10/25/2010 - 17:04 | 676132 Vampyroteuthis ...
Vampyroteuthis infernalis's picture

No, you cease production and layoff a good portion of your workers. Wash, rinse and repeat. Downward spiral.

Mon, 10/25/2010 - 17:06 | 676137 the grateful un...
the grateful unemployed's picture

and amazing the corporation can actually improve their earnings by doing this. but the corporate business model is flawed

Mon, 10/25/2010 - 13:58 | 675582 the grateful un...
the grateful unemployed's picture

did the paper trade at a discount to par? (probably not with these yields) When that happens the Fed makes up the difference, Uncle Ben reaches in his pocket.

Yield means almost nothing. you're not buying these for current yield, you're buying inflation futures, and you buy cheap

Mon, 10/25/2010 - 14:03 | 675601 michigan independant
michigan independant's picture

its a stupid tax. move along.

Mon, 10/25/2010 - 14:07 | 675618 Jim B
Jim B's picture

OMG!  I can't believe I missed it!  I wanted to pay someone to borrow my $$$$$.  LOL

Mon, 10/25/2010 - 22:19 | 676707 King_of_simpletons
King_of_simpletons's picture

You are paying someone to print money so that you may borrow that. You are paying a premium so that the printing press may create more money out of the thin air. Mere borrowing would imply there is money to be borrowed. A subtle difference exists I would think. The bet is that inflation would more than make up for the premium paid. 

Mon, 10/25/2010 - 14:05 | 675608 swissinv
swissinv's picture

No worries... Triple A rated and inflation protected -> before I forget Fannie Mae is AAA rated as well;)

Mon, 10/25/2010 - 14:05 | 675612 Return2Sanity
Return2Sanity's picture

Man, you know it's getting bad when you have to pay the government to take away your money. In the old days, the government would gladly take away your money for free.

On the surface it seems kind of like paying a fee to be the victim of a crime. You ask what fool would do that? But the answer is that some fools realize that everyone is in line to be victimized eventually, and by paying a fee at least they will get to select a misdemeanor.

Mon, 10/25/2010 - 14:07 | 675619 skyr191
skyr191's picture

broken market, bitchez.

Mon, 10/25/2010 - 14:09 | 675633 bob_dabolina
bob_dabolina's picture

Blue Whores Shoe likes Endicot Steel

Mon, 10/25/2010 - 14:11 | 675639 Clockwork Orange
Clockwork Orange's picture

Its cool. We do not need to worry about yield in a low inflation environment.  We just need some innovative tools. Just ask Zimbabwe Ben.

But whatever you do, don't look over here ...

12 Year Returns as of Sept 30:

Oil                       11.4%

Gold                     28.7%

Iron Ore              102.9%

Copper                  24.8%

Corn                      37.0%

Cotton                    63.5%

Beef                       22.9%

Source:  IMF

Joe the Plumber about to get plumbed again.  Treason.




Mon, 10/25/2010 - 14:27 | 675704 Caviar Emptor
Caviar Emptor's picture

Yup. Biflation will ensure that Joe the Plumber gets his pipes reamed through rising costs but deflating demand for services and impoverished customers. 

Mon, 10/25/2010 - 14:39 | 675748 tmosley
tmosley's picture

Pretty sure those are 12 MONTH returns.

Not to nitpick, but that's a big difference.

Also, your name is one of my favorite movies, along with Full Metal Jacket, Fight Club, and V for Vendetta.

Mon, 10/25/2010 - 14:28 | 675709 Akrunner907
Akrunner907's picture

TIPS with negative yield with the bet that upswing in CPI will be over 4 percent over the next five years.  If additional drop in yield occurs then on the other end of the teeter totter is higher inflation. 

Do NOT follow this link or you will be banned from the site!