TIPS rates plunge
Monday, March 10th, 2008
Categorized as: TIPS
Because of the ongoing financial crisis, a flight to the safety of Treasury securities, and the high rate of inflation, rates on some issues of TIPS with maturities of less than five years are negative, according to Bloomberg.
Bloomberg reports today’s 5-year TIPS rate as -0.21%, 10-year as 0.91%, and 20-year as 1.62%.
The Treasury, which also reports TIPS rates, gives the 5-year as 0.01%, 10-year as 0.90%, and 20-year as 1.60%.
TIPS rates can go negative when investors are willing to pay more for a bond than they will get back from the interest payments. TIPS investors are willing to do that because they expect to earn more from the inflation component alone than they can earn by investing in traditional Treasury securities with the same term.
Because of the ongoing financial crisis and the flight to safety, prices offered for traditional Treasury securities are unusually high (and, consequently, their rates are unusually low).