Friday, October 29, 2010

Treasury Inflation Protected Securities

Monday's auction of Treasury Inflation Protected Securities produced an unprecedented outcome for TIPS:

The U.S. Treasury Department yesterday sold $10 billion of five-year Treasury Inflation Protected Securities at a negative yield for the first time at a U.S. debt auction as investors bet the Fed will be successful in sparking inflation. The securities drew a yield of negative 0.55 percent.

Negative yields in T-bills was also unprecedented until December 9, 2008.  Needless to say; negative yielding debt instruments do not signal a stabile or healthy economic outlook.

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