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iShares TIPS Bond Message Board

  • bluelivermore bluelivermore Sep 21, 2011 3:35 PM Flag

    Prolonged late 60's and 70's style inflation?

    Long bond buying, does this just mean years of high inflation?
    Since Operation Twist just means QE3 for long maturities.

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    • Yep. Stagflation - inflation with slow/no growth. 10-year Treasury ended today at 1.86%. Called broker for a price on the 10-year 0.625% coupon TIPS July reissue/reopening to settle Sept. 30: price 106+(!) The 2% spread between 10-year fixed and TIPS remains; the 10-year government-issue TIPS will have a negative yield for the first time (as the secondary markets has indicated would happen) and now you buy 10-year TIPS simply for the inflation protection with no add-on. A zero yield is NO LONGER the floor on 10 year money. There may come a time (due to 7%-8% inflation and/or the flight to safety) when people will gladly buy a 10-year fixed treasury yielding LESS THAN zero, and a 10-year TIPS yielding negative 2 or 3 percent, when they perceive that everything - every alternative relatively safe investment option - is in the crapper, in order to just preserve MOST of their capital from total destruction. If you had only 2 options in life - either live paycheck to paycheck spending all your money and save none of it, or save some for your future knowing that in a year it will only be worth 90 cents on the dollar, would you stop saving entirely or would you still be prudent and at least have some cushion? In some countries, banks essentially charge you 5% just to keep your money safe for you (no interest paid and also fees are charged). If you only have $50, you might keep it in the mattress; if you have $50,000, probably not.

 
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