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

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Mon, 10/25/2010 - 13:10 | 675377 Rahm
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Mon, 10/25/2010 - 13:58 | 675581 whatsinaname
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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
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*wipes brow*

Please continue as previously scheduled...

Mon, 10/25/2010 - 14:41 | 675758 redpill
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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
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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
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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
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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
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I dont get how they index it for CPI

Mon, 10/25/2010 - 16:13 | 676026 EscapeKey
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In which case, surely any buyer would buy regular 5-years instead.

Mon, 10/25/2010 - 16:33 | 676063 TumblingDice
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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
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good to see you mf'er

Fri, 10/29/2010 - 02:02 | 685234 TumblingDice
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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
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Missed ya, Dice!  Good to see you weighing in.

Mon, 10/25/2010 - 13:11 | 675387 Nolsgrad
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 low yield of -.75%


Mon, 10/25/2010 - 14:37 | 675744 Turd Ferguson
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Wow, you've got to be one stoopid, brayn-ded mofo to be buying these.

Mon, 10/25/2010 - 15:04 | 675835 jkruffin
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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
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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
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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
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My TIPS are up 11% this year.  Just waiting for the moment to pull the trigger.

Mon, 10/25/2010 - 16:44 | 676093 Temporalist
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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
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I hope your clients enjoy losing $ in your 2/20

Mon, 10/25/2010 - 13:12 | 675388 EscapeKey
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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
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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
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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
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Mon, 10/25/2010 - 14:25 | 675697 HarryWanger
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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
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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
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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
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Small businesses want revenue, not cheap loans.

Mon, 10/25/2010 - 18:20 | 676243 ZackAttack
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That worked so well for Japan, too, I understand.

Mon, 10/25/2010 - 14:08 | 675624 Spitzer
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why did I get the displeasure of receiving this reply ?

Mon, 10/25/2010 - 14:08 | 675626 Tortfeasor
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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
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negative TIPS is just a bet on a big QE wiping out safe yields elsewhere. 

Mon, 10/25/2010 - 15:09 | 675858 jkruffin
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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
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velocity, maybe - wealth... mmm, not so much

Mon, 10/25/2010 - 14:17 | 675667 Caviar Emptor
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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
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Nothing is in a bubble when people want to buy it.

Mon, 10/25/2010 - 13:21 | 675431 SheepDog-One
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Depends on the 'people', who are they? Certainly not retail.

Mon, 10/25/2010 - 18:22 | 676244 Bananamerican
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Sheepdog, please tell me YOU didn't junk that....

Mon, 10/25/2010 - 13:33 | 675484 Eternal Student
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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
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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
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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
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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 CNBS...it's not a bubble if someone wants to buy it. [insert Joe Saluzzi eye roll]

Mon, 10/25/2010 - 16:24 | 676055 Goldilocks
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@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.

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