Archive for September 12th, 2011

Why are TIPS bid-only today? (Out to 10 years!)

Monday, September 12th, 2011

Both the Vanguard and Fidelity bond sites show no TIPS available for sale with maturities under 10 years.  Why?  (Is it impossible to offer bonds for sale with negative effective yields for some reason?)

Can the bond market’s “implied inflation expectations” be accurate if the TIPS market is totally broken?

One might infer that if sellers were able to raise their prices, there would be a price at which someone would make offers.  In that case TIPS are currently underpriced (yields too high) and the implied inflation expectations are too low (spread to Treasury yields too small).

Another way of saying it is that the supply of 5 and 10-year TIPS is inadequate and the government is, in effect, manipulating perceived inflation expectations to the downside. One would be tempted to consider this a policy choice, but it could just be that no one remembers that supply matters.

Hope to update this later after learning more.

Update 9/13:  Same situation again today. It wasn’t a one-off thing.  It would be interesting to know whether the situation changes after the upcoming 10-year TIPS auction later this month, and again with the 5-year in October…  But with the market this jittery, it seems a lot could happen between now and then!