Sunday, June 29, 2008

Real Yields Negative!

The current (6/27/08) yield to maturity on Treasury Inflation Indexed Bonds is ... -2% over 1 year! And it makes sense, as the current CPI is running about 4%, and the one-year rate is 2.3% on nominal bonds. Gee, makes one want to simply go out and invest in commodities. Oh wait! Lots of people are doing that trade already.

I think it's safe to call current monetary policy 'easy'. If one could borrow at the risk-free rate, a pretty brainless strategy should generate a positive edge. But even A rated banks are paying 2% above Treasuries to borrow these days, which is astronomical. People are pretty panicked, it seems.


J. said...

No wonder they are panicky, after what we have recently learned about ratings and about banks. And about the ¨mighty¨ dollar.

Anonymous said...

i thought we've established ratings are useless by now. 2% is too low. you think only 2% of banks will go belly up before maturity?

Anonymous said...

followup to above: