Monday, October 05, 2009

TIPS Auction: What is it?

Here is an interesting question. If the TIPs auction about to go off does well, will coupon Treasuries rally? Will demand for TIPs reflect good demand for bonds in general, or fear of inflation? If its the former, then Treasuries should rally. If its the later, then Treasuries will sell-off.

Either way, I've got a small bet on the long end rallying right now. I don't have a ton of conviction about it.


John (Ad Orientem) said...

My problem with TIPs is that the people who calculate CPI are the same ones that calculate unemployment. TIPs are probably the best house in a bad neighborhood. But that doesn't say much.

Anonymous said...

One of the best things to happen to the markets is the tips vs treasuries spread for inflation estimates. That cuts out the many estimate PR pieces we used to see.

In Debt We Trust said...

The long end of the curve could rally based on pure speculator interest. As you said in your earlier post, the short end is getting mighty crowded - especially w/all those foreigners (aka China) buying up maturities <5 years.

So, where does that lead people who don't trust the equity gyrations?

Bidding down the 30 year's interest rate.

This is what happens when we have 0% (or as close to it) Fed funds rate for 9 months and Eurodollar futures >97 for the same amount of time.

As for me, I'm just happy to short the vix every time the equity bears get too excited.

Anonymous said...

Quick FYI -- it's TIPS, not TIPs. It's an acronym, not plural.

John (Ad Orientem) said...

Anonymous (835 PM),
I stand corrected. Thank you.


John (Ad Orientem) said...

Have you read this? I was going to email you but (it's late and I'm tired) I couldn't find your email address on your blog.


Anonymous said...

I'd guess 30yr TIPS come in at 1.5 to 2.0 times the yield on the 10 year TIPS. Inflation risk in a 30 year timespan is quite high.

I'd like to see the treasury issue stepped coupon bonds with increasing coupons every 2 years to scale the coupon with the increasing risk of higher inflation in the far future.