Chris B

Treasury TIPS: Back in Style

I agree with everything said here. With massive upside potential and guaranteed return of capital (even if the govt. has to borrow at 20% interest to get that capital), what's not to like about TIPS?

Bigmoney, you (and I) have not lost anything in TIPS unless we sell cheap. Current market prices are just cheaper than the prices we bought at because deflationary expectations have increased. It's not like buying a company that may go out of business - the people who owe you own the printing press.

We are about to see a massive realization by market participants that the US government will not be allowing Japan-style deflation to endure for a decade - as current TIPS prices predict. This realization is less than 6 months away and will be a bigger disruption than the summer '08 change in inflationary/dollar sentiment. That's why I'm shorting treasuries via TBT and PST and going long TIP. Treasuries can't get much more expensive and TIPS can't get much cheaper.

0% treasury yields tell me that foreign money is looking for a liquid place to hide (after all, US citizens could just get a government insured bank CD yielding 3%). When that money flees, treasuries prices and the dollar will drop as the cash flows out of dollars and into foreign currencies. For investors who must hold ultra-safe dollar bonds, TIPS will seem like the best place to be in a stagflation environment.