Imagine if you went to a bank and opened a savings account. Then, they said that it would COST you .0055% for them to hold your money.
Welcome to the reality of today's TIPS auction. For the first time in history, the auction ended with a negative yield of -.055%.
About TIPS:
Treasury Inflation-Protected Securities (TIPS)
Treasury Inflation-Protected Securities, or TIPS, provide protection against inflation. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater.
TIPS pay interest twice a year, at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation.
You can buy TIPS from us in TreasuryDirect and Legacy Treasury Direct through non-competitive bidding.
NOTE: One maturity of TIPS, the 30-year TIPS, isn't offered in Legacy Treasury Direct.
Effective April 2009, TreasuryDirect permits accounts for both individuals and various types of entities including trusts, estates, corporations, partnerships, etc. See Learn More about Entity Accounts for full information on the new registration types.
If you notice, the interest paid rises with inflation, and falls with deflation.
The auction yield was -0.55, which tells you the fear of deflation is running rampant, and most importantly, will be a STRONG indicator for what the Federal Reserve does in its November 3rd meeting.
The Federal Reserve cannot afford for interest rates to climb, and for deflation to set in. When these occur, the cost to borrow money skyrockets the interest rates, and, the ability to pay off current debt is catastrophic.
As you can see in the slideshow (to the left), there is a chart that guarantees why the Federal Reserve will need to print more money (quantitative easing), and subsequently increase inflation.
Unlike the subtle indicators of the past two years that allowed economists, government agents, and pundits to spin the real numbers, we are at the point that the markets themselves are crying out the truth, and it is not that hard to see the direction we are going.
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