TIPS yields go negative
The yield on TIPS or Treasury-Inflation Protected Securities has gone negative. Investors are driving the yields down on TIPS, and are now accepting a lower rate than traditional Treasuries, hoping to profit heavily when adjusted for inflation.
This should worry economists. When investors are willing to accept a lower rate to profit from inflation, you know there is a serious threat in the air. Investors are weary to buy Government bonds unless protected from inflation, we’ve never really seen anything like this.
Investors need confirmation from the Federal Reserve that they are looking at inflation just as much as keeping the economy growing. Corporate bailouts increases the money supply and pushes the cost of most commodities through the roof. The bailouts allow corporate executives to keep their jobs while the average citizen is paying $4 for a gallon of gas.
This Tuesday it is expected that the Federal Reserve will cut interest rates again. Futures show that the market expects at least .75% rate cut. The futures market also has a 52% chance of a full-point rate cut. A full point cut would put the Federal funds rate at just 2%. These look are Greenspanesque numbers.
Tuesday will probably bring a lower stock market and higher gold/oil prices on the commodities market. Investors have been shy to respond to rate cuts, signifying that they serve no real boost to the economy. A full point cut on Tuesday will certainly start the stagflation bells while a .75% cut will likely go under the radar.