First-Ever TIPS Auction at Negative Yield: What It Means

[singlestacksig]

I'm not fully sure as the TIPS is a special type of US Bond not like what most people are use to seeing/hearing/reading about (ie. the paper bonds). I'm trying to look up more information but at this point I don't see why anyone would give anyone $105.50 today with the promise that the borrower will either give me back $100 in five years of IF the CPI goes up 5% I will get back $105. In either case I'm still LOSSING money!

So from a laymens terms it's not a good deal to buy these types of bonds unless you are looking to make a loss.

Someone with more financial knoweledge care to post?

since the creation of Treasury Direct accounts average Joe can purchase TIPS in small amounts , like $25 .. but at market rate.. if enough people put in buy orders the price will just go up..
I don't think anyone really said "hmmm.. I think inflation will be greater than 5% , so I will bid $105.."

 

[ATOMonkey]

Like I said, it's a hedge. You stand to lose a little or gain a lot. It's just like any other hedge, such as food or insurance or indexed stock.

 

[dross]

Like I said, it's a hedge. You stand to lose a little or gain a lot. It's just like any other hedge, such as food or insurance or indexed stock.

Kinda like when you keep flirting up the fat girl every time you go to the bathroom or get another beer, just in case the hot one you're talking to at the table doesn't work out by last call.

 

[jedi]

Kinda like when you keep flirting up the fat girl every time you go to the bathroom or get another beer, just in case the hot one you're talking to at the table doesn't work out by last call.

Oh that is

wrong but oh so true dross!

 

[SavageEagle]

tag

I'm starting to understand this, but still trying to put all the pieces together. It's just hard when you don't understand all the pieces. Seems I failed economics...

 

[ATOMonkey]

Kinda like when you keep flirting up the fat girl every time you go to the bathroom or get another beer, just in case the hot one you're talking to at the table doesn't work out by last call.

Now that is how you teach economics!!!

 

[cadan]

IF inflation/CPI shoots through the roof, you win big.

Not so. The government measure of prices called CPI is understated, so inflation (aka currency debasement) will end up returning to a TIPS buyer less purchasing power than they deprive themselves of today by purchasing a TIPS.

The real trouble will start when the Fed starts buying bonds in QE2, QE3, ... etc?. The monetary system of fiat paper currency is a violation of property rights, and thus unethical. I hope someday that the movement to end the federal reserve system (third attempt at central banking in the US) will be successful, and all legal tender laws repealed. If so, deficit spending will finally be impossible, forcing some financial accountability.