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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Tommaso who wrote (98691)	5/14/2003 9:05:53 PM
From: Wyätt Gwyön	Respond to of 132070

U.S. Treasury Inflation-Protected Securities (TIPS) that offer a guaranteed 3.5 percent return above inflation. i needed to check the dateline on that article, since it's been at least a year since TIPS had a 3.5% real yield. the article was from May of 2002. the last auction TIPS i bought were the Julys of 2012 which i bought in July of last year...they came out at a 3% coupon (the "real" yield) and almost immediately started trading at a premium. i sold them for 107 a few months later. TIPS have actually underperformed severely this year after a stellar performance last year. the real yield is down to around 1.75% (about half the real yield that Shiller talked about), but the real yield contraction mainly happened last year. the thing that's really hurt TIPS this year is the inflation adjustment component has come way down as the market "prices in" a whopping 1.7% inflation over the next 10 years. and TIPS are naturally hurt by deflation. how anybody can believe the real inflation rate is just 1.7% today, and will stay at that level for 10 years, is beyond me. but that's what TIPS are saying. one thing i have never liked about TIPS is their being indexed to the "core" CPI which excludes such nonessentials as food and energy. they had a very good run these past few years, but going forward i can see no reason to buy them. 1.7% above core CPI does not strike me as protection of real value. i would rather hold bullion.