Investors Pay the Government to Hold Their Money

by Marilou Moursund on October 26, 2010

in Bonds,Commodities,inflation/deflation,Residential Real Estate

The Treasury sold TIPS, or Treasury inflation protected securities, at a .  This means that investors are betting that inflation will rise enough to compensate for the negative yield they accepted at the auction.  From the linked WSJ article:

“The big demand is a sign the Federal Reserve is gaining some traction in its efforts to kickstart the economy and nudge inflation higher. TIPS are designed to protect investors against inflation, offering a return that rises as the cost of goods increase. In times of inflation, they are more attractive than standard Treasury bonds, whose fixed income stream is worth less as other prices are rising.”

The tug of war between inflation and deflation continues.  Food, commodity, and energy prices remain high, but housing prices remain weak.  The Case-Shiller index of 10 major markets fell 0.1% in August.  We don”t expect home prices to improve until the problems with foreclosures are resolved.

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