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.