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Interesting stuff - the TIPS curve has inverted, the 1-year yield moving from -2.5% to zero in 4...

Interesting stuff - the TIPS curve has inverted, the 1-year yield moving from -2.5% to zero in 4 months, meaning the market is now pricing in 0% inflation over the next year vs. 2.5% just weeks ago. Inflation expectations haven't collapsed like this since 2009. Might this chart be making the rounds with the Fed staff?
Comments (8)
  • All this says is that TIPS are a *lousy* deal. The inflation data used to adjust TIPS is not accurate. There are so many other ways to hedge rising prices.
    5 Jun 2012, 05:15 PM Reply Like
  • Either the world blows up...or those buying bonds in the last month are
    going to get hosed....A 7 year treasury gets you 1.04% a year..while
    carrying a 6.7 Duration risk...15 bps rise wipes out a years worth of interest...
    5 Jun 2012, 05:20 PM Reply Like
  • bbro:

     

    It's almost become comical, reading all the dire predictions about huge equity collapses, when almost all the equity holders left town ages ago. But, the hoards are crammed into the Treasury-bond "VW Bus," that gets more packed daily. It's amazing they can breathe.

     

    All it's going to take is a rather small tire puncture to send that vehicle careening into a ravine with lots of ugly carnage. There might not be a nail on the road around the very next corner, but there's one on the road somewhere, most assuredly.

     

    Hope they're all enjoying the ride, for now.
    5 Jun 2012, 05:29 PM Reply Like
  • I think that years worth is just about gone already. Amazes me how people will buy a 10-yr T-bill yielding 1.5% and pass on a blue-chip company like KO, CL, PG, etc.
    6 Jun 2012, 09:23 PM Reply Like
  • Deriving conclusions from things like the TIPS spread would make sense if there was a degree of stability in the treasury market. I believe prices/yields in the treasury market are extremely unstable - could easily jump around. Thats because the Fed isthe main market for treasuries. its a game between the Fed, the Wall Street ealers and the major central banks. it is no longer a market and therefore there is no useful information in the prices.
    5 Jun 2012, 05:32 PM Reply Like
  • Take a look at the chart of the Ishares Barclays TIPS Bond Fund (symbol TIP) especially the weekly chart. A well defined bull move with duration and trending. Has been above the 40 week moving average since early 2011!
    6 Jun 2012, 12:39 AM Reply Like
  • And? Crystal ball anyone?
    6 Jun 2012, 08:49 AM Reply Like
  • I keep paying a premium for OTM puts on a TIP portfolio with big embedded gains and the puts stay OTM.

     

    An interesting plot is to compare TLT versus TIP over a decade. In a panic, you want to be in TLT . TIP picks trades like a long dated treasury in much of the market but lags TLT when there is a melt down.
    6 Jun 2012, 11:45 PM Reply Like
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